Yea, I kinda thought about taking the wheel off and just checking it out but being totally in the dark about how they work I thought I'd give the ol forum a buzz in case even that would just be a waste of my time...
2001 F250 Super Duty Extended Cab & Bed 230,000 miles.
I had the same problem on my 2000. The Auto 4x4 wouldn't engage and I couldn't figure it out. So I tried to spin the driver's side in the lock position and it was stuck. A pair of vice-grips solved the problem then, but later on I just drowned them with PB blaster and they are doing ok, still haven't tried the auto, but they spin easily.
Do these things come apart? I didn't take them off. If they would come apart a quick greasing would obviously free this up.