If you put manual hubs on, the drive shaft will turn if the hubs are locked...when the hubs are unlocked the drive shaft will not turn (this is in 2 wheel drive operation)
As for the CAD not working, most of the time I have seen that the cad does not operate properly because of a bad vacuum switch on the transfer case. It is a 20 dollar part and is not too tough to replace. I believe that the 86 RC has a 208 transfer case and the clearance from the case to the truck floor is tight, but i am pretty sure it is doable.
If you want more info on how to diagnose the CAD, let me know
CAD stands for Central Axle Disconnect....it separates the drivers side axleshaft in 2 wheel operation so that the drive shaft is not spun by the wheel while driving. it is vacuum operated.