Welcome to the website.
For your question about the lift...
http://www.coloradok5.com/tirefitmenttable.shtml
that link provides a general guide for tire fitment. Every truck is a little bit different. You can use less lift if you are willing to cut the fenders.
About the rim size...
http://www.intercotire.com/site35.php
That link is to interco's website where you can find all the information you need about your tires. I am guessing that your tires are the all-terrain variety of the trxus because Interco says that the only trxus they make in a 39.5 diameter for a 20" rim is the "sts - all terrain" in a bias ply. If you go to their website it says that a 10-12" wide wheel will work.
As far as driveshaft's breaking...
That has very little to do with the amount that you lift the truck. A lift will increase the driveshaft angles, which can be hard on u-joints and can also cause bad vibrations. From the sounds of things, I seriously doubt that you will break your driveshafts.
Before you go buying more stuff, you should really plan things out. It sounds like you are on a budget, but 20" wheels, new gears / axles, lift, driveshaft changes (you will likely need longer driveshafts), and who knows what else really add up fast. I am not trying to discourage you, but I would hate to see you run out of money and abandon the K5.
You should also familiarize yourself with the search feature of this website. People are more likely to respond and respond in a nice manner if it is not a question that is asked all of the time.
Good Luck, and again, Welcome!