I subscribe to--there are no coincidences.

I assume you measured the diameter or circumference of the tires to see if there is a variance of 3% or more?

When the indy read the codes did he clear them so you can see if they all returned?

The change from 20" to 18" wheels can effectively change the gear ratio. That means that at any speed you travel the engine will very likely run at higher RPMs with the 18"wheels. I think that means that anytime the transfer actuator is engaged the gear will be under greater stress than with the 20" wheels. If that is correct and the gear was already worn the change could cause the gear to fail.

The fact that the 4X4 light was on the last time the 18" tires were on means to me that the tires sizes are at part of the problem.

I would do complete any troubleshooting to confirm the cause of the lights and then if I couldn't find a cause other than potentially the gear I would put in the new one.

__________________
X5 4.6 2002 Black Sap, Black interior. 2013 X5M Melbourne Red, Bamboo interior
Dallas