I've got an old Legacy 1994 Brighton 220 and using it as a padock car, and the 4wd doesn't seem to be working, we've tried it with and without the fwd fuse (in the top left corner of the engine bay), but it still doesn;'t seem to work.  

It's not too surprising that it doesn't work.  The hub in the trans could have sheared off or the rear differential could have failed, for example.  I had a 97 that apparently had the hub sheared off.  It drove fine as a front wheel drive vehicle. 

Sorry I'm a bit of a rookie when it comes to cars, would you mind explaining that a bit more.

It's fairly common for these older cars to have some delay in the awd engament. If you get a little front wheel slip before the rear engages that's normal, but if your front wheels slip continuously then there is a problem. More than likely it will be duty c or the clutch packs are shot in the center diff, those are the two most common problems. It wouldnt be a bad idea to get it up off the ground first and make sure that all the ujoints, CV axels. And hubs are connected tight and working properly, and they more than likely will be since rear end components usually go to around 300k miles depending on how hard its been used.

If you do some searching on here I believe there is a thread on how to manually check duty c and clutch pack operation

something is messed up internally inside the transmission. 

remove the rear extension housing from the transmission and replace the broken/inoperative bits - hub, clutch pack components

 

to further diagnose:
 

1.  is the driveshaft installed?
2.  is the transmission light flashing 16 times when the car is first started. 

3.  if yes - then read those codes - it's telling you part of the problem

4. any check engine light?
5.  disconnect the transmission electrical connector - the transmission will then run mechnically/manually with no electronics and that includes "locked" 4WD.  

does it now have 4WD? 

if not - then like i said earlier it's hosed internally. 

but i don't suspect the 4WD will work then either because it sounds like it's simply broken