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Are you going to remove the axle and all of its parts and replace with a 2wd front end? Or are you going to just remove the cv joints and front drive shaft? Are you keeping the transfer case?
You should get better mileage just by reducing weight and parasitic drag associated with 4wd. How much ...? What engine do you have?
You won't damage anything on your truck by using only 2wd.
I don't know what on demand 4wd lock diff is. If it is truly old school then its just either clutches/ springs in the diff carrier and won't affect anything. If you mean 4wd low range then that will still work just in 2wd.
FYI-- if you want to see how things work, just take off your front drive shaft and see how it works.
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