I am installing a V-8 with a AX-15 in my YJ. Right now I have a I-6 and a puetgou (sorry about spelling) junk tranny. with a 1 5/8 transfercase drop. In order to do a 1 or 2 inch body lift. Would it be best to raise the engine a little and then raise the transfercase drop to about 1/2 inch? This way my shifter will not need such a big hole in the floor inorder to function.

Installing a body lift and welding you motor mounts in high is a good way to reduce driveline angles and help raise the belly a little. Shifter hole concern is negligible.