Any time I can, off road, I like to be in low range. I'll sacrifice the higher RPM's that come with the increased speed (in sections where I can go faster) for the increased engine braking I get when I let off the gas, plus it's going to keep coolant circulating at a higher rate and take the load/temperature away from the transmission. I have seen others wait to shift into low until their transmission temperature warning light comes on (bad) and I have personally experienced waiting too long to activate the rear locker, which puts too much emphasis on traction of the least-grabbing tire (excess tire wear from spinning on rocks). Now, I'll say this about using the rear locker: you pretty much want to be going in a straight line when you're using it on high traction surfaces (again, like on rocks), so you want to plan ahead. Stop and survey your plan of attack for an obstacle or intended path. Use the locker before you get to the tough part and let it propel you through things, but disengage it when you are through or it might push you in a line you have a hard time steering out of. It takes some experience with getting a feel for how that thing works.
I like AWD, or the open center diff, four wheel drive mode, just for driving on dirt roads. It gives you a little pulling power in turns when traction is a little sketchy. I don't drive on slick or snowy roads in Phoenix, but I suppose it would be useful there.
In 4 hi-locked, dirt roads are able to be covered quickly. I think that's what the Gen 1/2/2.5 was made for. RyanY and I have hauled some serious *****, and I mean serious, on trails that would upset lesser vehicles. The center diff is locked, so engine braking is applied to both axles. The transmission is your friend in this case, and downshifting can be as effective as braking. Don't be afraid to rev the engine out - they like it. The Dakar-inspired heritage built into a Montero really shines here. We need to make more video to illustrate, but you can be an off-road hero that will embarrass other makes. I was able to burn through an entire tank of gas in my 95 SR in one day having this kind of fun, yet Ryan's truck just pulled away from me and left me chasing. I'd like to have his suspension improvements and with the Adventure Driven Designs introductions, it should make my truck his equal, eventually.
I own a Gen 1 also(and have owned a few before). You get almost everything except AWD, so no big loss in AZ low country, and the same principles apply. 4-Hi is a blast, use 4-lo when going slow.
John B.