Nice truck!
You're gonna love it. I also have a '96 Ram 3500 CTD, exact same truck as yours... except its 2WD... reg cab... green... more miles... uglier... etc.
From my experience:
Before you do any power mods take care of the transmission first. When my stock trans went out, I had a guy from DTR that goes by "mcmopar" (Phil is his real name) do the rebuild on my transmission. It cost $2,400 for the rebuild, along with a Goerend valvebody and single disk low stall torque converter. Its nice, but I still will probably end up doing a 5spd swap and selling this transmission. He says it is good for 350-400HP, which is more than I plan on making for quite some time.
One of the things you should do is tab the "Killer Dowel Pin", its an alignment pin that can fall into the timing gears and... wreak havoc. Its a small price (at $44 from TST) to pay for the assurance that it will not fall out and cause catastrophic damage. Here are a whole bunch of pictures I took when I tabbed mine. It is great to have a helper when you remove the fan shroud.
http://www.dieseltruckresource.com/dev/showthread.php?t=143355
Get rid of the K&N. Fast. Replace it with a BHAF, I got mine online for around $44 I think. Took me all of 10 minutes to install, the hardest part was getting the intake tube around the lip of the filter because the rubber was super stiff since it was really cold out.
I got a 4" downpipe and some 5" pipe from a person on DTR, and for half a year drove it just like that, it exited right before the end of the cab. Now its finished off with a 6" side dump exhaust... Please, PLEASE, take note: it is LOUD. VERY LOUD.
Now, I am 18 years old and absolutely love it. My 47 year old dad thinks very differently, and is perfectly happy with the sound and performance of his stock 1996 Ram 2500 CTD.
A MBRP 4" turbo-back exhaust would probably be perfect for you, very very easy to install, and includes a muffler, it sounds really good but isn't as obnoxious as a straight pipe.
No cat to gut, That's not a cat you are looking at better start reading more.
Sorry, but that is incorrect. The 1996 CTD did in fact have a cat, it is not a resonator. I've seen this discussion happen many times before, and the truth is there is a catalytic converter on these trucks.
OK, so lets say you've taken care of the KDP, transmission, you now have BHAF and a nice sounding 4" exhaust system.
Before you do any performance mods besides the BHAF and the exhaust, GET GAUGES. They MUST come first. Since you have an automatic transmission, and plan to tow, you will need a transmission temperature gauge, along with a pyrometer at the least. But get a boost gauge while you are at it too. I have ISSPRO gauges and really like them. I haven't hooked up the transmission temperature gauge yet though.
I see that you don't want to grind your own plate. Thats fine, though it is very easy to grind your own, I understand that you may want to keep the stock one just in case. Start with a #10 plate, and move it just a little forward of the stock position, keeping the AFC housing in basically the same position too. See what kind of EGTs you get, and adjust accordingly. I have a #10 plate a little forward of the stock position. You wont' believe the difference it makes over stock.
So this is where my personal experience ends, and others can guide you. I will probably do a GSK next so I can wind it out a little more, but for now I am more than happy with the #10 plate. The highest EGTs that I have seen with the plate are right around 1150-1200 degrees, thats holding it to the floor for as long as I could just to see how warm it would get. Before the plate I saw EGTs around 900 or so.
235/85/R16s are a good fit for these trucks. I don't remember seeing what gearing you have, but if you have 4.10s you might want to go one size up. You may need spacers though. I have 3.54 gears and the 235s go great with them. They look a lot better than the stock size tires too.
Here are a few pictures:
Yes, its ugly, I'm sorry
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6" Side Dump
Gauges
While the stock stereos are actually pretty good, its nice to upgrade it. I really like this Alpine unit. I should get some better speakers though...
BHAF
Phil paints all his tranny's green.
Well... there you have it. Hope I helped you out some. Your truck looks great, and will give you many many miles of trouble free service.