You wont see much with the actuator removed (back side of the fork). With it removed all four wheels off the ground and someone in the drivers seat. Use a long 3/8 extention or something similar, push this into the actuator hole with the truck in 4 wheel, selector in drive and your foot off the brake. Apply moderate pressure, you should be able to lock up the front axle. If not you may indeed have a busted fork. If it does lock up you have a very common alignment problem (more common than I originally thought) my guess is that there are alot of people driving around thinking there in 4 wheel drive and there actually not.. You can also try this. With the actuator installed and all four wheels off the ground, put the truck in 4 wheel drive. With a pry bar or stick lightly pry up the passenger side inboard CV shaft knuckle. You should hear the clicking sound of the actuator trying to lock the axle. Once this slight pressure is applied the axle will almost imediately engage. If this is the case you have alignment/gear issues. Remove the CV shaft, remove the back side housing bolts that attach the gear box to the oil pan, next (on the bench) remove the gear case bolts, take the gear box apart being careful of the spring keep track as to what goes where, clean out all the grease in the parts washer and get things dried up for analyzing. Look closely at the CV shaft mating gear. Typically this will have a wear ring where it seats in the needle bearing if it does replace it. This is putting slop into the system causing things to cock out of whack. Next look at the shift fork. It will likely be worn at the tips where it rides on the synchronizer, replace it if it does. Most of the time these parts are always worn. Next you have a choice on the syncronizer gear and back side mating gear (thinner of the two) you can either replace or if you have a small pencil die grinder and a small carbide bit put a slight taper on the mating face of the gear and syncro. Your trying to eliminate any restriction in the gear and syncro from meshing without getting carried away. (dont even attempt this with a file, you will ruin your file:nono: these teeth are hard!) I typically do the beveling then I buff the face gear teeth to a mirror finish. Buy new parts or modify, either option works. Just depends on what you have for equipment. With either option I always replace the cv case side needle bearings, gear if worn even slightly, both front and back seals, and almost always the fork. Lastly I DONT use the recomended GM chasis lube. I've been using a molybdenum grease. Pack the gear housing lightly, dont get so much in there that nothing moves. Put a small bead of flange sealer or silicone, reinstall the box and shaft and your good to go. I have noticed that when its cold you may have to wait a few minutes for the grease to warm up with the engine for good engagement. I have often thought about drilling and tapping the case to accept pipe plugs and then use gear oil which would eliminate the cold weather issue. Only problem is that its such a small gear box if a leak were to appear and not get caught in time it would run out of oil quick and you would have some major problems.
If anyone has any questions let me know. I've done a few of these and its always the same issue weather you have 7k or 80k. Very crappy design...Many customers have had it to the dealer many times before it comes to me, I dont think GM is seeing it as a problem...