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The LSD option for the rear diff enhances vehicle stability and traction in any 4wd position, including 2wd. It essentially allows engine power from the rear propeller shaft (drive shaft) to be transferred to the tire that has more traction, up to a limited amount of slippage, hence "limited-slip differential".
This is advantageous if one rear wheel is in mud or ice, and the other wheel is on pavement, for example. Without the LSD, the wheel on ice will spin and the wheel on pavement won't move at all. With the LSD, some engine power gets transferred to the wheel on pavement, so you won't be stuck.
Note: even in 4wd-lo, if one rear tire and one front tire don't have sufficient traction, it's possible to get stuck without the LSD.
See this link for a movie clip illustrating an extreme example of low traction in 4wd. This vehicle HAS a limited slip rear diff, but one rear tire is completely off the ground. With an open diff, no forward progress would have been possible.http://members.telocity.com/deanandconnie/hh0301/dean_wheelspin.mov
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