I think one of the biggest benefits of the XJ is the large aftermarket support and used equipment selection. There are plenty of forums with regional classifieds specifically for XJ's. I paid $600 for a used high pinion dana 30 and 29 spline 8.25 rear axle with 4.10's installed. That's a pretty cheap regearing especially after selling my old axles to offset the cost of the new ones. I also picked up my sliders and gas tank skid used.
I think regearing is mandatory with anything larger than stock tires, but I also live at 5000 feet and 10 minutes from the Rocky Mountains. Anytime I have fun in the XJ it's at high altitude and in the hills. If I lived in an area with no hills (at sea level) I could see stock gears with 31's working. I drove a friend's XJ (same year as mine) with 33's and 3.55's..... it was depressing. Just my opinion.
My commute is 4 miles each way all city. It takes about 12 minutes. With 235/75/15 duratracs and stock gears (3.55) I averaged 12.4 mpg. Same tires and 4.10's I'm up to 13.5. Mixed driving I get 15-16 mpg with both sets of gears. Highway seems to be about 18 with both sets of gears. I have never seen 20 mpg with my XJ. Mine is a 99 with 115k. In the last 2 years I have replaced almost the entire ignition system (spark plugs + wires, distributor + cap, etc), o2 sensors, air filter and the entire cooling system. The jeep runs great and hauls butt. Plenty of power to pass on the highway w/ 4.10's and it screams up big hills. But unlike everyone else on the internet I've never seen 20 mpg and I've never been able to chirp my tires from a stop.
With my 2" OME lift I needed a SYE. I shimmed the rear axle, rebuilt the stock rear driveshaft, changed out motor / tranny mounts, pulled the front drive shaft to eliminate vibrations from the front, etc. It came down to either a Tcase drop or SYE. The SYE solved my vibrations from the small 2" lift. If you're going to lift it, I would budget for a SYE and then spend the money on something else if you don't need it.
With two adults and two black labs you may find the interior space of the XJ lacking. XJ's are great little machines. Simple with 4 doors and solid axles. Easy to modify and work on. Cheap aftermarket support. A little on the small side and not as smooth as IFS rigs on the street (I used to have a Tacoma). I believe they are great value in the $5k range.
