Hi Jim,
To select the TOD system the lever is pushed forward. On mine, the "auto" light (in the centre of the TOD display) flashes a few times and then stays on. Representing the front wheels is a bar of 3 seperate lights. Usually none of these are lit until the system detects a lack of traction and distributes drive to the front wheels as required and illuminates one, two or three bars depending on the lack of grip, (you probably know that already). There is a "check" light at the bottom of the display which should light up if there is a problem with the system. Are you sure that all the lights are working? I wouldnt say that my system is particularily more noisier with TOD selected than in 2WD, although it did clunk a bit when I had the front brakes binding. I guess the system thought that it was loosing grip on that wheel? I expect the TOD would affect the mileage a bit but when you dont much to the gallon anyway it doesnt make much difference!

Hope that helps a bit.
Cheers
Russ.