I would not begin troubleshooting by suggesting to the OP to look for components the vehicle doesn't have, you'll just confuse him. Like I posted, I thought the T case linkage might be out of adjustment and the T case wasn't shifting all the way out of 4wd.
The axle disconnects were vacuum-operated, that's the reason why there is a vacuum switch for the indicator on those models.
In fact XJ's DID stop using vacuum switches when they went to one-piece axles. My '93 XJ, with a one-piece front axle, had an electrical switch. I know that because the 4wd indicator light did not light up in any position, and I determined it was probably a bad switch or an electrical failure between the switch and the light.
Lon checked his 95 Grand FSM, no mention of a vacuum switch.
Any further questions?