There's two different systems on the 3rd gen...There's Auto 4x4, and then there's AWD. AWD has no low range, and no user controls...It's just there all the time. IIRC, it sends something like 30% torque to the front wheels. The 2nd gen used a viscous coupler, but I haven't really researched the 3rd gen much, so I don't really know for sure what type of transfer case it has.
The A4x4 system seems to be more popular than AWD in these vehicles, and it does work well too...It's not as seamless as the AWD, but works well nonetheless. This is the system that senses rear wheel spin and engages the transfer case accordingly when in the Auto mode, but can also be locked in to either 4x4 high or low range.
When it's in the Auto mode, it disengages when no wheelspin is present, so the need for a differential in the transfer case isn't really needed. The NV242 transfer case like the Grand Cherokee had used a differential in the case to allow 4x4 Full-Time operation on dry pavement, but also had a Part-Time mode that locked the differential, as well as a true 2WD mode. The Explorer has no "real" 2WD position, but rather is in (mostly) 2WD until wheelspin is detected, then engages the front wheels thru an electromagnetic clutch. The 3rd gen is less "on-off" than the 2nd gen, and can gradually reduce or increase the percentage of torque to the front end, though it's still a bit clunky and rough at times.
From what I've experienced and what I've read here on the forums, the 3rd gen AWD system does work well. For light-duty use, it's probably more than adequate. Most people I know that have a 4x4 have never used low range once, and lots of them don't really even know when to use 4WD and when not to. I just had a customer take a Ranger off our lot and engage 4WD at 60 MPH on dry pavement, and wondered why it sounded so rough. Duh!
If a person never planned to really venture off-road and just wanted decent winter traction, AWD would probably be all they'd ever need.
I've owned lots of different 4WD vehicles, and I will admit that this is the absolute best 4x4 system I've ever experienced for daily use in winter driving. Paired with the optional AdvanceTrac system that mine has, it's nearly idiot-proof. I've never had a vehicle with better winter snow/ice traction than my Explorer. I've owned lots of Jeeps with both Quadra-Trac and Selec-Trac 4x4 systems, and though good, they aren't even in the same league as the Explorer's AdvanceTrac A4x4 system. I've heard Range Rover has a remarkable 4WD system, but I can almost guarantee I'll never own one or probably even drive one long enough to see if it's really that much better.