Tire size & Clearance: I ran 35's at stock height too and they did kiss the steering arm when turning sharp right, but very minor. With at least 3 inches, 35's will be NO problem as long as you don't mind taking the bottom corner off of the back of each front fender. Don't even need to do that for the street, but if you ever flex it out on a trail, it can catch that corner even with 4 inches of lift.
I'm running 37's now on 3 inches of lift and my only problem is them hitting the firewall at full stuff, but I'm gonna move the axle forward with ORD's zero-rates to solve that.
Tire Size & Gears: 3.42s would be a bit rough with 35's I ran my 35's on 3.73s and didn't have any problem though. It was no dragster off the line, but for day to day driving it functioned just fine.
I went to 4.10's when I went to the 37's, which is within about 4% of being the same deal as 35's and 3.73's and I'm still happy with it.
Axle Swap: I totally agree that regearing 10 bolt rears is a waste of time and money. Put in a 14b rear (and a 10b or D44 8 lug front). If you look around, you can find a complete ready to rock 8 lug axle set for $150-$400 depending upon condition and gears. As a bonus, these axles are almost always 3.73 or 4.10 so you won't have to mess with regearing. Just bolt them in and go.
As for further reading on this, it's probably one of the most discussed topic on here of all time... try a variety of searches like "14 bolt swap" or "1 ton axle swap".
Finally, all the same locker options you have for your current axle are available for the 14b rear. If you plan to wheel the rig, you're actually better off hunting for a 14b that does NOT have limited slip since a full locker (e.g. Detroit) requires an open carrier to install into on those axles.
If you get lucky enough to find a 1 ton set out of a military truck, they'll have 4.56 gears and a detroit in the back already, but then the price goes up as most people realize what they have.
