Hello 20jarrod, that sounds just what our former 2005 crdi did on and off before eventually the front wheels wouldn't engage at all. The problem was in the actuator in the front axle - it uses engine vaccuum to engage (and to hold it in 4wd) but in our case there was a small split in the diaphragm inside it allowing the vaccuum to leak. The actuator is a sealed unit and was replaced under warranty, the dealer pulled the old one apart to find the problem.
The light on the dash does not indicate it is actually engaged, only that it is meant to be.
It's easy to check if it's engaged, just do a gentle turn on full lock and you'll feel the heaviness in the steering