You have the dreaded transfer case internal leak (i.e. hydraulic fluid leaking into the the ATF side of the transfer case). If it doesn't leak much you can go for a while yet. Have your transfer case ATF replaced (less than a quart) and check your hydraulic fluid level regularly. My transfer case doesn't leak (yet) but I still replace my ATF every fall as an inexpensive preventative measure. You may wish to do it at every oil change. To eliminate the 4-Matic error code you need to disconnect the battery for 15 minutes or so and it should resume normal functions. Make sure that you have the code to reset your radio B4 you do so. You can also disconnect the 4-Matic brain behind the battery but it is harder to get at. The TC will need R&R when it begins to shudder & bind. You'll know. Mine is the 300E so I don't have to concern myself with the self-leveling suspension. I have gone several months with the TC in the Test Mode with no ill effects. When my TC goes I don't intend to have it replaced. I will simply drive my 300E as a rear wheel drive. I don't look forward to this as this is the best car I've ever owned for winter driving.

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Reno

'93 300E 4Matic
'98 Nissan Altima
'00 Yamaha Road Star Silverado