A broken cable would cause it to snap back to 2WD, yes.
Maybe I'm overthinking it, I tend to do that, but I see this being a very bad thing.
Cable rotates the shaft through this pattern:
2 => 4H => N (unmarked but there) => 4L
If you use a spring an the cable snaps, it rotates the opposite direction until it stops in 2wd.
If you're in 4H when it snaps, it jumps back to 2wd. Mostly an inconcenience. If you happen to be pulling hard in 4H and the front axle suddenly disconnects, it does suddenly drop all that load onto the back axle and driveshaft. The shock load couldn't be good for them.
There's no Neutral position marked on the selector in the cab or on the outside case, but there is one built into the transfer case. Locating it and placing the transfer case in the neutral position has been mentioned as one of the perks of the Shiftster, and there a few reasons to want to use it. One is flat towing, it neutral disengages the disengages the transmission from the driveshafts so it isn't being spun tow. Imagine if you will that the cable pops while you're being pulled along at 35-55 MPH and the transfer case drops back into 4H then 2wd. The pump on the 4/5R transmissions is on the input shaft, if it isn't turning the fluid isn't pumping, so suddenly you're running the transmission dry. Imagine if the transmission were in the park or a gear position (forward or reverse), being towed because it was stuck there, or not thought about because the t-case is in neutral. That shock load definitely wouldn't be good for the system. In park it's probably going to break the parking paw, in gear its going to do a bunch more internal damage.
Finally imagine if you had it down in 4lo on the side of a mountain, pulling hard, trying to climb up and over an obstacle. Cable snaps. Transfer case drops into neutral. It's like breaking a driveshaft, except it's both of them are gone simultaneously and you're free to toll down hill until you get on the brakes to stop. While you're reacting to that the shaft continues on around to dopping into the 4H and you have that shock load again, except it's a lot worse because your engine RPMs shot up from the loss of load and you were freewheeling backwards down the hill/obstacle. Talk about a bad situation. If something wasn't broke before, it probably is now.
I wouldn't place bets on any of these actually happening, but IMO spring loading the shaft creates and/or amplifies the possibility and asking for trouble. There is a reason that the Ford put in controls to prevent the transfer case from shifting in certain conditions. Pure manual operation you atleast have the human controls to mimic that. The spring isn't going to care.
This one, a user started to do exactly what JoshT explained using two cables (I forgot about this one):
Glad to see I wasn't the only one with the idea, but unfortunate that he abandoned the project. I think he would have been better off to start from scratch, than try to adapt the parts he was using. It wouldn't have been an option then, but with todays 3D printer filaments, you could probably design and print a functional and usable drum to adapt cables to the Shifster. You could probably 3D print the whole conversion kit except for the cables, but I'd rather have a solid material for the lever and mounts.