Note that NP203 takes 30W engine oil, not gear lube.
The NP203 shifter mechs are a little complicated, and get sticky when they get full of mud and dirt. The solution is to take the boot off and soak the shifter mech down with WD40 or PBBlaster or Silikroil from the top, running all the crap out of it onto the pavement. Should shift smooth as glass.
Note that you can shift from HI to HILOC and back, or from LO to LOLOC and back, any time, even when moving and in gear, as long as the hubs are locked.
Shifting through the neutral position on the transfer case, from HI to LO or LO to HI, you do not want the transmission in Neutral, you want it in Park, so the input shaft to the transfer case is at dead stop. Either that or shift it with the engine off.