Jimny Owner - Encountered 1st Problem 4x4 - HELP!

The grinding noise and lack of drive is bad. When switching between 2 and 4wd the rear prop is always engaged, so regardless of whether you are in 2 or 4wd the car should still move when you lift the clutch.
The only time the drive to the rear axle is interrupted and it will make a grinding noise without moving the car is when shifting from hi to lo range. There is no 'neutral' position in the transfer case, so if it hasn't shifted completely from one range to the other it will make nasty noises and bad things could happen.

I'm not familiar with the electronic transfer boxes, but I guess there are 2 actuators- one for the front prop (4wd) engagement, and another to switch between hi and low range. It sounds to me like there are some wires crossed and it is trying to change to low range when it should be engaging the front prop. I'd check the wires on the transfer box and check the wires in the dash where I presume there is a control unit for all this stuff.

There is one actuator, looks like a windscreen wiper motor, by the output flange. It pulls + pushes the 1st selector rod just like you were hauling on the lever in the old ones.
Absolutely everything depends on the 4wd switch on the transfer working (and being connected), as Barkis21 said.
If it thinks it is in 2wd and you press for 4wd, it will try and engage 4wd (by turning the actuator motor on to move the rod and stopping when the 4wd switch comes on), if the switch doesn't come on I wouldn't be surprised if it moves a bit too far then gives up, and gets it partially in low, losing all the drive.
It then won't move back into 2wd when you press the button, as it thinks it is already in 2wd, (because the switch isn't working) and you are just being stupid with the control buttons. It won't try for low, as it needs to know it is in 4wd first, but it doesn't.......

There is no way for it to tell where the actuator is, apart from when the 4wd, and 4wd low switches come on respectively, I expect at ignition on it runs it back out towards 2wd and waits a couple of seconds to be sure it is fully in 2wd, then everything starts from there.

Exactly as said above I had the same issue one of the wires was just hanging on by the rubber looked fine until I got underneath I connected it and it went straight in to 4wd

That makes lots of sense Facade!

thanks for the info chaps...

well today the garage changed some pipes on the front axle however still the same..

the only changed what they could see were visible and rusty.

Problem is they havn't got a flipping clue about anything else and therefore didnt investigate further...

I got home and on ignition I changed to 4wd, it makes a sound like as if something has moved however theres no clicking from the front hubs as i saw on the video earlier...

Barkis21 - what part is that in the pic you have supplied?

facade - your explanation is bang on, i assume its doing exactly that.

where is the acutal 4wd switch? so i can check to see if its connected... the mechanic said he looked underneath and it looked fine - im not too sure tho

I also read on the last page that pdf file, there is a small filter under the bonnet near the valve but I couldn't seem to find it.

Do the ones with electric 4wd have this small filter. As it said that if it's blocked sometimes it can cause 4wd not to engage