Copy and pasted from snowplowforums.com:
The NP203 is a full time case, which always turns the front driveshaft. Most didn't even have hubs as they were not needed. It does have an internal differential system. It works the same as an open rearend and splits the power between the front and rear. It prevents driveline binding when turning hard by allowing the driveshafts to turn at different speeds. You can lock this out by using the HI or LO LOC positions for better traction.
The shift pattern should be
4 LO-LOC
4 LO
N
4 HI
4 HI-LOC
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The converted NP203 will still have 5 positions, but instead of 4HI it will become 2HI. 4LO becomes 2LO.So it will shift like this even though it won't say that on the knob.
If you put the truck in 4HI (according to the knob),and the hubs unlocked it will move forward if it has been converted as you will now have 2WD.If it's stock it may or may not move depending if the internal differential kicks in or not.
4LO
2LO
N
2HI
4HI
The kit basically eliminates the internal differential and does not allow front to rear speed differences. If it does have the kit either convert it back to stock or make sure it's overfull and use 4 HI or LO every 30-40 miles or you will cook it.
Converted NP203s do not lube the back half of the case properly. If you have a part time kit in the 203 don't forget to overfill it by at least 1 inch and you should use synthetic or it won't last. Running it in 4 HI or 4 LO once a week helps too.
The full time NP203 case is the best for plowing as you can run 4WD all the time but it's easier on the drive train as there is no binding when turning hard. It is so much easier to maneuver in tight spaces without throwing it in 2WD when the ground isn't real slippery. If you do get stuck, just LOC the case and drive out.
Don't forget to drain the fluid first. I'd refill with synthetic afterwards. The NP203 uses 10W30 (Mobil 1 works well) .
It would not make a very good long distance towing vehicle due to the lack of OD and very low gear ratios. I have a friend with a similar setup, and what he does is swap trannies in the summer for towing his mowers. He uses a TH400\NP205 in the winter for plowing and then swaps in a TH700R4 (2WD version) without the transfer case for the summer. The lower 1st gear and the OD are a big plus for towing. You should be able to find a used 700R4 and the correct drive shaft at a wrecker so it is a bolt in affair.
This was cut from several different posts and helped me understand how a np203 conversion works. My problem was it wasn't shifting onto 4LO Common problem with this shifter. Adjusting the shifter is a B to get to short of removing the transfer case. Doing the cheap and easy thing first, I hosed the shifter down with WD40 and PB Blaster and got it to shift into 4LO and quite a bit easier through the whole range.