I had the same issue...do not use grease! That works well at first, but the second you get any dirt/mud/grit in there, it won't stay "locked" in two wheel drive. Luckily, Warn engineered it so if it get's "stuck", it's stuck in 4wd.
I use dry lube on mine. I take it apart every so often and clean it. I think I have some teflon dry lube I picked up at a bicycle shop.