'Neutral' is kind of the range between high and low. I haven't actually tested to see how far you can move the lever before it switches. With the transfer case in neutral and the transmission in Park, the AT/P light in the instrument cluster will light up:
It only lights up in park.
The low-range switch/sensor on the transfer case is probably bad. It might just need to be 'cleaned':
CDL Sensor/Switch - https://george4wd.taskled.com/cdl.html (It's about the CDL switch/sensor, but applies to all of the switches/sensors on the transfer case)
IIRC, the front and rear diff...
According to who?
I seriously doubt it. At operating speeds, the grease is thins out significantly. Put some Amsoil NLGI #2 in there and I'll bet it's as good as you're going to get. Regardless, friction from greased bearings is way, way, way down on the list of things that inhibit the...