Just changed the Universals and support bearing:

I put the transfer case in neutral ( not engaged to trans )
The front axle was locked to the rear axle...
I had to go to 2H postion to free up the rear axle drive spline
from the front axle..
Is this Normal????
I always thought that you put the transfer case in neutral
for towing ?
Is 2H better with trans in neutral the correct way?

really confused now....

Note: Carrier bearing (axle support bearing ) replace took a lot
of slop out of the driveline,, also the replacement bearing appears to have less rubber around bearing ( less play )..

 

I would say your selector is off neutral is neutral (at least it is supposed to be)