Jerry,
That would explain it. I had to release the lever to pull cable out, so that makes sense. So simple! Thanks.

Dave,
Take a look at these instructional plates for my NAPCO. The left reproduction sticker shows how the transfer case needs to be in neutral for Power Take Off (my winch comes off the t-case). Ignore the plate in the middle, it is incorrect to my truck. The original plate on the bottom, states to operate winch in first, second or reverse gears of tranny. The plate in the upper right is an original tire pressure plate.