MB used the 4-matic system for about 8 years, however the US only had it on the 300E's for 4 model years.
The problem with the transfer case is fluid leaking from a clutch pack into the mechanical part of the case. THAT can be repaired just like an automatic transmission. MOST shops don't have the ability OR info OR tools to try that repair! IF the light is on the system is inop!
The 4-matic computer has MEMORY & the codes need to be read to find the problem.
The NEW 4-matic systems are electronic instead of mechanical & that seems to work much better.
MERCEDES Benz Master Guild Technician (6 TIMES)
ASE Master Technician
Mercedes Benz Star Technician (2 times)
44 years foreign automotive repair
27 Years M.B. Shop foreman (dealer)
MB technical information Specialist (15 years)
190E 2.3 16V ITS SCCA race car (sold)
1986 190E 2.3 16V 2.5 (sold)