Last post/thread I found was from 2012. Sorry I went crosseyed at the amount of "oil leak" threads that pop up. Today I took the valve out and installed a known good valve and new oring, blew out all the lines on the transfer case and I still have the same issue at low rpms moving trailers and what not around. Not at highway speeds. So I must have air coming into the transfer case and causing it to be pushed out. Another plumbing issue I am sure. Ill check my other trucks to see how their lines are hooked up. I know that is a common on these trucks.
See if this thread helps any.
http://www.steelsoldiers.com/showthread.php?149814-M923-A2-HI-LO-Stiff-shifting-Problems
Remove the short line, including the fittings, and plug the holes. Should be 1/4" NPT plugs. If the problem goes away then leave it like this. It won't affect anything and the T-case will shift easier. I've been running this way for a while now.
The other cylinder on the T-case is the front axle engagement cylinder. It should only be charged with air if the front axle switch is placed in the IN position. There are two possibilites here that could cause your symptoms.
If the transfer case is plumbed wrong then this cylinder will be constantly supplied with air. If it leaks then you'd have the same symptom you have now. Incorrect plumbing has been a known issue so it is a possibility. You'd be in 6x6 all the time.
If the automatic engagement switch next to the shift linkage fails it can also constantly supply the engagement cylinder with air. This could also cause the same issue if the cylinder leaks. Same thing, you'd be in 6x6 all the time. I had this happen after I bypassed the shift cylinder.
The transfer case vents to the intake stack by a line that looks like the rest of the air lines. It is not necessarily a direct routing since it goes through a Tee in the frame rail. The easiest way to trace it is to start from the intake pipe and work your way back. The vents are plumbed in on the frame rail side of the pipe.
As for being filled to the proper level, I've seen it said before and it turned out to be wrong so pardon the question. I'm only doublechecking. When you refilled the T-case, did you fill it to the hole or leave it 1/2" below when cold, per the Lube Order? Even a slightly overfilled T-case will purge oil. I speak from experience on this one too.