I have my driveshaft out. I have AUTO, and I have had no problems. I once got a 4wd hi and low blinking lights, but it went away and it didn't leave any codes (I scanned it later that week). Basically, take the driveshaft out -- it won't hurt a thing
-Drew
EDIT: The reason you do not need a front driveshaft is because your tires are still moving forward and I believe our transfer cases are rotating constantly. In turn, the computer and everything else still lines up. Now if you have AUTO and go on ice and it's trying to kick it in and out of 4wd, you may have a problem when it noitces the front wheels are driving because there isn't a driveshaft.