I've found the transfer case to be a bit grumpy to shift, especially if left sitting for long periods.
Squirt some "liquid persuader" on the shift plunger, move the truck forward or backwards a few feet and try again. I know you said the plunger moves but it sounds to me like you're not getting nearly enough travel in either direction.
Also, if the lever is hitting the floor or seat, you have a lot of slop or you're out of adjustment. If the shift linkage is worn, you might need a trip to the hardware store to fabricate some linkage shims/spacers to eliminate some of the slop.
You could also drain the oil and check for metal bits and then replace it with fresh oil. Be sure to use only GL-1 mineral based oil as called out in the lube order. These older trucks have some "yellow metal" in the transmission and maybe the transfer case (I can't recall right now). The modern GL-4 lubricants are not compatible with these softer metals.