I tried searching here as well as on the web and I cannot seem to find, if any concise answer on this. I went to look at a 1999 Montero (Gen 2.5) and when I test drove it, the lights for the front wheels on the 4WD panel were flashing and there was one light for the passenger side rear wheel on and did not blink at all.

I shifted the transfer case between 2H and 4H and it didnt make a difference at all in the lights. When going around turns, the rear end of the truck hopped, like the rear diff was locked. Tried to go some distance in reverse but that didn't help at all.

I really like this truck but Im afraid that this may be a serious issue and since Im new to Mitsus in general, I wouldnt know the first thing about how to go about troubleshooting this. Any ideas?

 

Not familiar with your year model Montero, but on a later ones flashing front wheels indicate that the transmission is in the process of engaging the front wheels. As long as the lights are flashing the process is not completed. Since you said shifting from 2H to 4H did not seem to make any difference it is likely to be the case. Honestly, it can be as simple as a bad vacuum line, or as complicated as problem with the front end. Can't really tell.
Regarding the hopping rear end. Does the truck have lockable rear diff? Did you check the tire condition? Do the rear tires look more worn out than the front? Perhaps the rear diff is stuck all together?

 

It's the endeavor model with three locking diffs. The rears were replaced at some point before being offered for sale. My guess is the owner was driving with the rear end locked and torched the tires.

It seems that the rear diff is locked and the one wheel cannot freewheel and make a smooth turn. I tried to see if there was any sort of connector for electric at the rear axle but didn't see or feel one. I think I could be wrong about it having 3 locking diffs and the darn thing may just be seized up.

All in all not worth 2500 she's asking

 

If she's been driving with locked diffs, you have no idea of wear and tear on the rest of transmission and drive train. You are right - it can be a big bag of trouble.