I am quoting Randy88FJ62 who posted this on the "Writeup: 1988 FJ62 4WD Solenoid fix for $17.77" thread. I just want to thank Randy and tie this response in since it's regarding the same issue for whoever comes after us and benefits from Randy's work and efforts.
"Hi recruiser,
You do not need the front hubs locked to check the driveshaft locking with the tcase. The driveshaft locks when the VSV tells the vacuum diaphragm bolted on the end of your tcase to actuate.
Here's where I would start and work my way down:
1. Put eBrake on and foot on brake, put transmission into neutral. Then shift the 4WD shifter from 2H to 4Lo. Put truck back into park and check that the front driveshaft is locked. This will tell you if your tcase is working manually.
2. Take it out of 4Lo and back into 2Hi. Now we need to test the 4Hi.
-pop the 4H button bracket off and verify the 4Hi switch is connected. Test with a multimeter to verify it's getting power. If it is and the light isn't turning on then it could be a bad bulb or the sensor on your tcase could be unplugged, bad wires, or defective.
3. Now that you verified the switch is working, push it down and go check the driveshaft. If no good then we move to the VSV's on the firewall.
4. Your situation is odd. The Red VSV usually fails casuing 4WD to be engaged rather than your issue of not engaging.
-Get under the truck and visually make sure the two vacuum hoses are going into the diaphragm. If they are not then the VSV's won't be able to tell the tcase to switch via air power.
4. If the diaphragm hoses are connected then swap the hoses on the VSV's. This will test to see if the blue VSV can do the job for the red VSV.
5. If this doesn't work then try blowing on it yourself. If this doesn't work then it's factory service manual time. Donwload it on here or buy a paper copy. "