Sure the whole car has seen much better days including the hubs. Sure they need some attention, they are currently locked and have not had chance to try and unlock. The message I seem to be getting is that the car should not be used in 4wd mode on the roads. That is not going to be an issue for some time, first goal is offroad use. Both the normal gear stick and the 4wd are in Neutral. When 2H is selected is that the rear 2 wheels and the setting I should select?Yes, but that assumes that they are working correctly. Frankly, your hubs look like they have not seen any service in some time. Is the lever set to ‘free’. And if so, can you move it to ‘lock’, and in doing so, actually feel the movement of the gear inside, as it pushes forward?
Again, unless there is something amiss with the front distributor, etc., normally, when you jack up one wheel, and the opposing wheel is on the ground, and you cannot turn the jacked up one (because the other wheel wants to turn) it means you are locked in 4wd. You can remove the manual hubs, intact, just by removing the 6 ‘screws’ that hold them on - I believe they are Torx screws, by the way. You do not have to remove the tire in order to do this. With the manual hubs physically removed from the car, see then if you can turn the jacked up wheel or not.