that electric switch on the CAD is just a switch to turn on the 4wd light on the dash.
The CAD itself is operated by vac. pop the actuator off of the axle housing (4 bolts) and while the truck is running have someone switch the truck from 2wd to 4wd while you watch the actuator to check its movement. Another culprit could be a bad Vac leak, these trucks are famous for rotting out the vac line going to the cruise control which is under the drivers side battery. The acid and whatnot from the battery eats the line and in some cases the cruise actuator too!
One thing these are famous for is the bushing in the outer axle (plastic bushing!) wears out and the axles misalign and the coupler cannot slide across both axles. The stupid thing is that their is no bearing to support that outer shaft, just that little plastic bushing.
I had the same issue with my truck, but ended up leaving it till i tore the splines off of both shafts!
Heres a pic on the axles. these are my new axles, straight from dana/spicer and they do NOT use the plastic bushing.
This is the innner/intermediate shaft.
This is the outer shaft which on the stock axles has the bushing in it to align the axles.
Its not a really hard job to do, but the wheel/unit bearing can be a pig to get off and they are deadly expensive so try not to beat it up. Also while its apart you may want to change the axle seals, this is the perfect time to do it because the passenger side HAS to come out to do the drivers side and the passenger side seal is a ton easier to do with the intermediate shaft out. Their is a little trick to getting the passenger side seal in which involves a long piece of allthread and building a slide hammer as the seal installs from inside the CAD housing and needs to be pounded out towards the wheel.
Heres a good little writeup on doing the job. Another thing to note, DO NOT fill the diff to the bottom of the fill plug, it will more than likely leak from the axle seals. proper level is 3/4" below the bottom of the plug!
http://dieselpowerman.tripod.com/Front Axle Tech/Front Axle Tech.htm