Welcome to the forum Trevor , I have a 2002 450 with the electric selectable front diff like you , I really don't know about the flashing lights as I have never seen them go off before , I had a problem with the connection at the front diff coil , wasn't getting flashing lights but would loose the front diff and blow a fuse , I cleaned out the plug ends with WD40 and compressed air , then packed them with dielectric grease and it been ok for a long time now
from what I know about the system , a speed sensors doesn't engage the front diff while going to fast and cause damage , a coil on the front diff that engages a collar on the splined pinion shaft