In a message dated 96-11-22 14:51:48 EST, 1217@mn2.lawson.lawson.com (Paul
Holmdahl) writes:

<< He also said that the diff lock is only responsible for the 
 rear wheels so it shouldn't be harmful to drive it on dry pavement for a 
 while.  I understood otherwise - that the vehicle should never be driven on 
 dry pavement with a locked diff.  >>

The differential lock creates a mechanical lock between the two rear axles.
 When they are locked they cannot rotate at different (differential) speeds.
 While turning a corner, normally the inside wheel travels at a much slower
speed than the outer wheel.  If the lock in engaged, they must travel at the
same speed and either the inside wheel will spin to maintain the outside
wheel's speed, or the outside wheel must skid to maintain the inside wheel's
speed, - or a combination of both.
This puts a considerable strain on the differential gears and could cause
damage.

You can, however, drive on pavement for as long as you like with the diff
lock engaged.  Just don't make ANY turns!

I suspect that you might have a problem with the indicator light operation
rather than a problem with the diff lock.  I haven't seen a diff lock
spontaneously engage.  
You can perform a test to see if the lock is really engaged. Drive slowly on
pavement through a curved path (yes, straining the differential for a moment)
and you should definitely feel the difference (a binding feeling and a
tendency for the van to want to travel straight), when the diff is locked.

Good luck,
Jim Davis
87 GL Syncro
88 GL Wolfsburg