As far as the NP208 goes, there really isnt any upgrades availible, you can rebuild it and get a good quality chain in there. The key downside ot the NP208 is always going to be the case itself. They are prone to cracking when put through significant abuse. I have seen them crack due to internal stress, not always an impact.
That said, the rebuild kits and chain arn't going to set uo back a hell of a lot, and the case can easily be clocked. It's going to be significantly cheaper to rebuild the NP208 than swap in a NP205. With that said, some would call that polishing a turd. You'll need to look into how you use your vehicle and what your plans are for the future, if the NP208 is going to suit your needs.
The NP205 is fairly plain and simple animal, the chances of you breaking a rebuilt 205 is slim to nil. You'll lose a bit of low range, have to get an adaptor and mess about with driveshafts. If you never want to go dual cases in the future, you would be able to retain the same TH400 version NP205. It's also going to be a bit heavier, but that comes with strength.
The pro's and cons need to be weighed, if you could give us some insight on the future of this vehicle and drivetrain we might be able to better suggest the avenue for you to go.
-Kyle.