C4 specific:-
Check that the PDAS and ABS lights extinguish after starting the engine. These lights warn of a failure in the high pressure hydraulic system. The Streather book mentioned above explains all.
With the engine running and stationary, pump the brake pedal several times. Depending how hard you press, somewhere between 3 and 5 times. You should then hear the hydraulic pump kick-in and run for about 5 seconds, then stop.
Does the 'traction mode' engage using the rotary switch on the dash (next to the manual spoiler switch on a post '89). Even at pull away speeds you should be able to feel the difference with an extra tightness/binding in the driveline. I think the yellow LED either stays on or flashes as well. And you should hear a click/knock as the two diff locks engage.
You won't be able to see the front diff due to the plastic panel covering it but they have been known to leak. Also, check the condition of the extra pair of CV boot up front.
There should be no clunks or noises associated with the 4WD system; it is rock solid in operation with no slack in drive take up.
General:-
Just to add to the list of locations to check for rust:- where scuttle panel meets front wing, on the sills hiding underneath the plastic covers, jacking points, rear wheelarches where steel fittings have corroded, front and rear wings where they meet bumpers, bumper mounts.
Good luck.