1. Driving or operating with the front hubs disengaged and the transfer case in the low range position does in fact give you 2WD low range. This is useful for things such as backing up trailers where sometimes the vehicle just wants to go way too fast even at idle speed, it also works great as in low range you can in fact put the transmission in 1st gear and get out and walk beside the vehicle. Done this many times with an old farm truck bucking hay onto the flatbed.
2. The neutral position on the transfer case is used for towing the vehicle for extended periods of time where all 4 wheels are on the ground. It completely disconnects the engine/transmission from the axles so the axles are in free-wheel mode. So yes, when you put the transfer case into neutral the vehicle won't move, ok well if you are parked on a hill without the brakes applied it will just roll away. But yes, its normal for the truck not to go anywhere when the transfer case is in neutral.
3. Low Range, regardless of being in actual 4WD or 2WD, you shouldn't be going very fast, and at 35mph would be pushing it a bit far IMO. Low range is for extremely slow speeds, its not for long distance travelling. Even with a load. If you need low range to move a load around you definitely have way too much weight for the vehicle.