I'm not the most knowledgable person on the forum, but here are a few thoughts:
The 8.8 is generally cheaper that the D44. You can get an Explorer axle ('95 and up) with disc brakes. The lowest factory ratios are 3.73 and 4.11, but the 4.11s are hard to find. Mountain Off Road Equipment (MORE) makes a kit for $363 that has all the weld-on brackets and e-brake cables to put the 8.8 on a TJ. RE and others also sell bracket kits. The stock brackets are a bit weak, so I would go with HD brackets.
With a "small budget lift", and fender kit, you will likely have trouble running 35's. The Interco Super Swampers (narrow 34 x 9.5) will fit on stock wheels. If they rub, you can add 1" body lift. Also remember the lowest available ratio for your Dana 35 front is 4.88. This ratio is ideal for a 4 banger with 33" tires.
The NV3550 tranny (2000 model TJs) is very strong. If I were doing a swap for a 4 banger, I'd look for one.
http://www.novak-adapt.com/knowledge/nv3550.htm You can bolt the 231J with terralow right on the back.