Lately Ive noticed that when I engage either locked high or locked low, the light thats suppose to illuminate on dash takes several seconds to a minute to come on and make the audio noise. The shifter seems to shift fine though. Is this a early indication of a failing componet on the transfer case? Maybe the XYZ switch?

 

May be the switch.
UHB100190 - Oe Reverse Neutral Switch Auto Discovery 2
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CDL isn't always an instant on/off with the tug of the lever. It can be instant or it can take a few feet forward/backwards for it to fully engage/disengage.

It could be a failing CDL indicator switch on the transfer case, but when they go they normally totally stop working.