That sensor SHOULD be for the light. And if your fluid looks good then you did not get enough water in there to hurt anything.
Mechanic's 101, usually the simplest things are the hardest. Check out that actuator sensor. does it have continuity? Is the actuator working? The fluid is fine, so its probably not the culprit.
Bottom line is, if you put the lever in 4x4, it should be in 4x4, if it is not, then the problem you have (on your year truck) is likely not electrical, but mechanical failure, at the weakest point. Start looking at that vacuum actuator REALLY hard.
my next step would be:
Remove front Axle
Repeat on other side
...If I was DIY'ing, just because I would want to check EVERYTHING. If at any time, you slide an axle out and it comes out without splines on the end, you broke one
As far as the lines into the transfer, they SHOULD be vent lines, if I recall correctly. Not likely you got water in them, unless you were over your fenders. Dodges are awesome in that (nearly all that I have seen) have vents WELL above the tops of the wheels. My friend has a 1998 and his vents for everything come out at the top of his fenderwells in his engine bay.