Oh, oh, I'll take this one!!!
(Cranking the t-bars and the associated myths are one of my favorite topics!!)
First, turning the adjuster screws, aka "cranking the bars" does not of itself affect the ride. You're not adding any "preload" to the torsion bar, as many people incorrectly say. There is no more stress in the bars after cranking the adjusters than there was before. Turning the screws to change ride height is the EXACT same thing as putting a spacer above a coil spring. EXACTLY the same.
The thing that DOES affect the ride is the loss of droop travel after you crank up the nose. If you start with 4" up and 4" down from normal ride height (which is pretty normal), and you just crank the bars up 2", you now have only 2" of droop travel, and 6" of compression. With limited droop travel, when you run through a bump that is more than 2" deep, the suspension can only drop 2", and then the truck drops quickly into the hole. If you ride in a truck with limited droop, it feels like the front suspension is VERY stiff. (And there's a lot of clunking as it tops out constantly...) It's the lack of droop travel that's killing the ride, the spring rate at the wheel is virtually unchanged from what it was before. (There is a tiny bit of change, because of the increase in arm angle, but for 1-2", it's not significant at all.)
Having said that, there is generally enough bolt thread left to get at about 2" of lift without needing replacement keys. Re-indexed keys do the exact same thing as cranking the bolts, but they are a LOT more difficult to install. Most of the kits that come with keys usually come with longer shock brackets too, which restores some of the missing droop travel, but it's the shock brackets the keep it riding nice, no the keys.
My suggestion: IF your adjuster bolts aren't rusted and you can turn them, 5 turns is about an inch. I would do 5 turns each side and drive the truck for a bit and see what you think. You will probably get away with an inch without any adverse effects, and not a whole lot of alignment change either. If you decide you want more, go up to 5 more turns. At that point, you'll want to either put a 3/8" spacer under the lower shock bracket, effectively making it taller, or buy new taller lower shock brackets. You'll also want to get an alignment, and MAKE SURE they actually adjust camber back to factory specs, not just set toe and push it out the door...
In my experience, you can always get 2" (10 turns) out of the factory bolts. One is also normally hanging out a bit more. That's fine, just do them equal amounts, not equal lengths. If you jack up the truck by the center of the rear diff, the front can be leveled left to right by adjusting the torsion screws, but usually that's not necessary.
Cranking up the bars does put more leverage on the pitman and idler arms. If they are loose at all, the handling will get more sloppy the higher you go. At 2", you WILL get increased wear on both, it's just the cost of having a taller truck... The rest of the parts (CV's, tie rod ends, etc) are generally OK with up to 2" of lift on the front.
My experience is that I cranked the from of my old '96 about 1" with zero problems, and I'm running my '06 with about 1" of lift too. Note that it only creates more clearance for the tires until the suspension compresses a little, like when you hit a bump. If you plan to take the truck offroad at all, you really need to do some trimming in stock form to make the tires clear, or they'll be in the fenders the first bump you hit.
As for your 4wd, my guess is that the position encoder inside the shift motor is gummed up from age, and possibly lack of use. My recommendation is to take the shift motor apart if possible and clean the electrical contacts on the wiper that tell it which range it's in, applying some fresh di-electric grease when you re-assemble it. Alternately, since yours will shift to low range, shift it between 2wd and 4-low a bunch of times. That will wipe past the 4-hi position, and will sometimes clean the contacts enough that you'll get 4-hi back. If it does, then be sure to shift to 4 hi and 4 low at least once a week if you can. Lack of use causes far more problems than using the electric shift 4wd systems. You don't have to drive far, just punch the botton and drive across a parking lot, or a city block or something. As long as you're going mostly straight, there's no harm in shifting in and out of 4wd on pavement, it's turning that can cause damage if you have some iffy parts, or the truck is heavily loaded.
My experience has been that the TCCM is RARELY at fault for shift issues on GM trucks, but it's easy to replace, and expensive, so most dealers head right for it the second the t-case won't shift properly. I head for the shift motor and encoder on the t-case.
You can also choose to buy a new shift motor. They're not that expensive anymore, and you won't have to mess with it for a while. I'd still recommend you shift it regularly.
Good Luck!!