Recall that in the early '70s it was decided that aluminum was the next best thing for residential wiring and so many houses were built using aluminum wiring. Then the wiring started to go bad. It was discovered that aluminum gradually "mooshes" over time so that things which used to be tight...
The light is just an indicator. It seems most likely that the issue is with the switch/sensor which detects the transfer case position. If you have a warranty then the dealer should address this for you.