Just a couple of questions for you.
Are you willing to cut the fenders?
Are you planning bigger tires?
What type of wheeling are you planning?
weekend warrior stuff? Rocks?, Mud?, all around wheeling?
Is it going to be a daily driver?
Answering these these will help us help you.
plus knowing how much your willing to put up with will help you
A welded rear will be chirping tires on the street around tight corners, and wear your tires faster and in a weird way. But that is part of welded rears, and if your willing to put up with it then weld it. another option is a lunch box locker but it costs more.
Cutting the fenders will allow for bigger tires with out suspension mods, but you will needs beefier shocks for the bigger tires to help control them. You will also need to get gears to match the bigger tires to allow the 22re to stay in it's performance range.
Or you can drive it with a power loss with out much problems up to a 32 or 33 inch tire any bigger and it will just be too gutless. again all this depends on what you are willing to put up with and how deep your pockets are.
I wouldn't waist a lot of time on building the engine since they are fine just the way they are. and with what you would spend on power you could easily make up for with the right gearing.