Automatic or manual transmission?
The FWD fuse tells me it's an automatic. The transfer valve is probably worn sufficiently that it is not releasing when it should, and that's why it's binding.
The AWD transfer valve and clutch pack are in the rear of the transmission. When I had them replaced on my '99 Legacy it cost about $750.
I'd be tempted to insert the fuse and live with FWD. Continued binding will cause internal transmission damage and significantly increase the repair cost.
If you can locate an independent Subaru mechanic you wouldn't need the dealer, but I'd want someone who knows and understands the Subaru AWD system to fix this.