It might just be that the center diff. is locked in the setting that you selected and the drivetrain is straining against the difference in tire speed, front to rear/side to side.
I know when I select anything other than auto in my car 05 STI and make a tight slow turn i get chirp/screech from the diff/tyre.. only on turns tho not going straight or reverse

As to why it doesn't select to green not too sure

04 STI don't have DCCD so must have been an 05 or above

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