I'm not certain if it changed for '94 (don't expect it did), but my '92 doesn't have a direct connection between the PCM and the transfer case. However, something like the Vehicle Speed Sensor (VSS) is connected to both the PCM and the transfer case shift module. Transfer case shifting issues are most often shift motor issues, so it doesn't seem likely that a VSS problem would be the case here, but, as a stab in the dark, it's something. Do you also have troubles with the cruise control (also tied into the VSS)? Does the transmission shift into 4th gear (electronically controlled using VSS as a principle input)?
Another "shot in the dark": are you sure you are waiting for the CM codes to come out? It occurred to me that someone unfamiliar with the test procedure might see the first KOEO 111 and think he was done and interrupt the test before the CM codes are even output (which would clear the CM codes, BTW). From your original post, I assumed you meant you are seeing four 111's [111 111 (KOEO codes) 1 (separator pulse) 111 111 (CM codes)], any chance I have assumed incorrectly?
Another "long shot" "stab in the dark": is there possibly a loose connection in the jumper wire you are using (or other test equipment), that would somehow interrupt the test and cause it to clear CM?
Have you tried the KOER test to see if it reports the problem there (where there isn't a question of "storing" the code)?