I have an '04 and did a bit of experimenting when I first got it. I found it to be quite stable during transition. It's a lot smoother than I expected. For the most part, it only engages when you're accelerating away from a stop. I suppose if you were cruising along and romped on the gas it might engage but that would be foolish operation. It's a great feature IMO. No steering bind on cornering and yet, you get the advantage of 4HI when conditions warrant.
I don't know the particulars of the system innards but I suspect that, unlike traditional 4WD, the system is partially engaged in the AUTO mode. Only on slip detection are the hubs locked for example. So there are things working while the AUTO mode is engaged and those things can break or wear out.