You are welcome-and bear in mind that these are really just my opinions based off owning 3x D1's and being a part of the community since the early 2000's. I wouldn't say they are authoritative, just biased by time and experience.
Underpowered is somewhat true; especially for an old/tired 3.9 pushing through the ZF transmission (the automatic, which is a great transmission but does drain power). Refreshing a 3.9 and putting in a new cam may yield significant results. Bear in mind of course we are talking about a truck that is 20yrs old now. A 4.2, refreshed and cammed, would provide a little more. Likewise stroking out to 4.6 goes even further along that curve. I had a 98 with a built 4.6 in her and I found it to be rather adequate in terms of power even lifted with larger tires.
A 350 can be done, like anything with enough $$$ and time it can be done!
Diesel will almost certainly be more underpowered than any gas OE engine you put in there-many have good reasons for going that way or seek the moth to a flame like attraction of diesel but it will never be all that powerful compared to gas unless you shove something significant under the hood (and revisit that $$$$ and time component).
Reliability is another matter, these trucks suffer from a deserved reputation that is often as predicated off poor maintenance as anything. The 3.9L's were rather reliable once you get the dizzy/cap/rotor stuff sorted out, put another way how many miles does your 20yr old truck have on her now before she became unreliable? In all my years with D1's I've been on a roll back going home one time, that was because I grenaded a 140k mile clutch in a streambed like an idiot...that's not the truck's fault, that was me learning. Even when the top end of my 4.6L let go, while towing during a PCS move, the truck still made it to the destination despite being crippled. Reliability is ultimately a facet of the owner's ability to maintain and solve problems to keep the truck in the fight. These are simple trucks and robust, once you learn the basics they don't tend to let you down. The infuriate you...but don't let you down!
cheers-
Ray