Stuck in 4H
Nope
Being stuck in 4H is purely a mechanical issue, and will either be the shifter or internal to the transfer case - which, on an iO is completely mechanical - there are five switches, one of which controls the front axle disconnect, the other four, plus one more on the front axle, control the dash display, which is nothing other than eye candy.
Unless someone can correct me
Unless someone can correct me moving between 4H and 2H should just move the VCU together driving the front prop shaft and trigger the switch for the vacumn solenoids for the front hubs.
I would drain the transfer case and check for swarf. Refill and try massaging the lever back and forth.
Consider yourself corrected ...
A simplified explanation would go like this - the VCU is a sealed unit splined to the rear output shaft & driven by it - the 2WD/4WD synchroniser rotates on a bearing over the rear output shaft and is immediately adjacent to the VCU and coupled to it - the synchroniser has an input section driven by the VCU, and an output section which drives the front output shaft via a chain, linking the two sections is the 2WD/4WD clutch.
In 2WD (2H) the rear output shaft is turning, and with it the VCU and the input section of the synchroniser, the output section of the synchroniser would not be moving - when 4WD (4H, 4HLc or 4LLc) is selected the syncroniser sleeve slides over the 2WD/4WD clutch coupling it to the drive sprocket, which then drives the front output shaft via the chain.
Before draining the case I would suggest removing the shift lever, and checking the selector rails for debris that may be fouling them - there is a bush on the lower end of the lever that disintegrates and may fall into the rails, preventing them from sliding.
Start by removing the console and shift boot, look down through the opening you'll see a plate held by three bolts, remove those and pull the lever up and out - to the right of the opening is a large hex plug - this will need to be removed before you can reinstall the shift lever - it holds a spring that "pre-loads" the shift lever to the right, the 2H/4H plane.
Yesterday, while playing 4wd,
Yesterday, while playing 4wd, my IO jammed itself in Hi 4x4 as well, good timing, it was after all the hard stuff and only had to go down one steep hill (well a bit scary because I could not select low range).
I have pulled the shift out, and I can select the transfer ranges by using my screw driver.
So my problem is in the shift, I found lots of brown pieces, thought they were dirt at first but they are plastic, so I guess there is something missing now.
See what Mr. Mitsubishi says about it in the morning.
Ian.
That's the bush I mentioned earlier.
Mr Mitsubishi will try to sell you the entire transfer case shift lever assembly - when all you need is a little piece of plastic - I drew the line at that and fabricated a bush from a polyurethane shock eye bushing - it looks like this.
Now - that image comes from an ebay auction - you can try the ebay bush see if it works - or - do like me - make your own.
Same problem
Excellent information and instructions Fordham.
Yesterday, here in Mallorca, I went to reverse the boat trailer down the slipway, which requires low ratio due to the gradient and weight of the boat. I shifted from 2h to 2lc and got stuck and completely locked in 4h.
I found this thread and today carried out removal of the shifter using these instructions. It looked like the curved black plastic bushing in the shifter mechanism had a small bit missing on one end, but this was difficult to properly determine due to the metal retaining cover hindering my view. I removed the two 14mm spring retaining bolts on the end of the shifter casing and 17mm one mentioned in these instructions, cleaned the springs and then drained some of the transfer box oil, in case a bit of plastic came out, which it didn't. Topped up the oil and reassembled everything except the 17mm bolt. Checked to see if the shifter worked again and it did ! Tightened up the 17mm bolt and shifter still moves through all positions. It is not perfectly smooth - moving from 4hc to 2hc is not smooth and requires a bit of muscle, but it should do for now.
Many thanks Fordham
Update a few days later
Got stuck in 4h again last night when pulling the boat out of the water after watching the eclipse here in Mallorca - stunning btw.
I think by removing the pressure from the 17mm bolt will release the lever. I'll report back with my findings.
No dice
Removed the lever, the 17mm and 14mm spring bolts. Had a look and a prod in thee hanism, but couldn't find a problem. Reassembled and still stick in 4h.
One thing I did discover was a ball bearing. Does the lever have a bearing with a plastic body or should that bearing be in the shifter mechanism ? Perhaps it goes Infront of the 17mm spring bolt ??
That might depend on what it's made of ...
I'd say a little lube is a good idea, but you need a lubricant compatible with the material - I used a polyurethane bush and I honestly don't remember if I did lube it, but poly bushes can be lubed with molybdenum grease (CV joint grease), and I usually have synthetic based rubber grease on hand as well, so if I did, it would have been one of those.

hmmmm
I read somewhere on this forum that there may be a sensor/fuse/plug/some weird mystical device on the transfer case that has a tendency to blow which results in being stuck in 4H??
Really can't offer any help other then that this issue IS on the forumn somwhere else and I can't remember whether it has been resolved or not but something on the transfer case.
Good luck Chris :/
2002 5dr Pajero IO QA 2.0L Auto - Lifted, Locked!! 1.925 Low Range - Muddies (205/80/16) - Redback Extractors to 200cell cat to dump at diff Exhaust