Dont worry about it getting locked in any 4x4, because this sounds like your
computer (Transfer Case Control Module) is about to take a crap or the
Encoder Motor (the motor that shifts) is taking a crap. If its the computer
it should go back into 2hi by default. If its the Encoder motor I dont know
what to tell you. We had the same problem with our 99 Jimmy it has the 4
button sytem (auto4hi)

Oh the wonders of push button 4x4 and the reason I would never own
one. It is normal for the service light to come on when code it set
and the light will reset when vehical is restarted but code should
still be readable from memory. Try scanning it while light is on.
-----------------
TheSnoMan.com

In that year, the most common problem was the dash switch.  There
are two types of  "trouble codes".  Current, and history.  In your case,
there is almost always a history code 2725 if it's the dash switch.  If you
don't have any codes in history, the other option might be that you need
to have the ATC (automatic transfer case) module reflashed with the
latest software.  The dealership will have the ability to do this.  The
maximum that they should charge you for reflashing the module (if in
fact there is an applicable update) is .6 hrs at whatever their labour
rate is.

If you happen to get an 0327 code either current or history, you
may have an issue with the position sensor in the encoder motor.
This issue was not a big problem in the early years, but now we
see it on a regular basis.  In this case, you remove the encoder
motor and replace "only" the position sensor.

Hope this helps.

Ian

I had the same exact problem plague me off and off for the first 6mos of
owning my new 2003 Silverado Z71 - it took about 6 trips over 6 months
for them to replace the pushbutton control module.  They reset the
computer several times because they never found anything wrong - finally
I managed to get it in there when the error occurred - fortunately it
never came back once they replaced the switch.  I found if you pull the
fuse to the 4WD module,leave it out a few seconds and then put it back
in and restart all would be fine - that told me it was electronic and
not mechanical.  You are correct in assuming that whatever mode you are
in when the error occurs you are stuck in, but removing/reinstalling the
fuse would be a temporary fix that only takes a minute to do.

Good luck getting the issue resolved.

Take care,
Kevin

A generic ODB II scanner probably won't pull the code as the transfer case
is not emmissions related.  You would need the GM tool for scanning
non-emmissions codes.  I bet it's an expensive tool because it is not
mandated by law to be compatible with other manufactures like the emmissions
items are - sort of like ODB I.

  My 2000 4x4 Silverado 5.3 LT had the "Service 4x4 message".... in 2nd
Year...

 Problem was cold solder joints on the 4x4 Push Button switch...

    Replace the $50 Push Button Switch unit & the Prob should go away
??