Just a FYI, the 2.5L will never be a 4.0L. Now that we have that out of the way, the 2.5L is a very stout engine for it's size. It'll make power out of idle and has lots of potential. Right now, with just a few basic mods, I'm pushing 31" tires on stock gearing and can still get going from second gear. It likes to be at low speeds, so don't expect to go 75mph on the highway. I usually keep mine under 65mph, which seems to be a good speed and the engine isn't reving too much.
With the right gearing and axles, it can push some fairly big tires. You mentioned you were looking at those 5.5" lift and some bigger tires. Well, the tires that require that much lift won't be easy on the stock axles, specially the rear (but this will be a problem with both 2.5L and 4.0L), so you'll need to upgrade that (lots of info here). Gearing pretty much depends on what size you're turning, and we can help you out with that.
The 4.0L swap really isn't very viable (at least I don't think so). You're looking at a complete engine/tranny/t-case swap. Not saying it can't be done, just saying it'll be too much work and money for something that you could have gotten the first time around. If you get the 2.5L, stick with it.
The Cherokee shouldn't have any problems hanging with the Yota guys. Chances are you'll have a just as built truck than them for less $$ since there's so much aftermarket for Jeeps out there. Check
DPG Offroad, the owner himself has an XJ, so there's lots of stuff for cheap there.
