Welcome aboard. A lot of the questions you asked have already been answered (by folks more knowledgrable than myself).
That said, here's my answers:
DANA 35 or 44: Neither. Source yourself a nice low mileage D2 Ford 8.8 Rear end out of a 95+ Explorer. The D2 version has 4.10 gears and Posi so it should be a good fit for lots of power and abuse.
manual/automatic: Your preference. I like the manual better. Haven't driven an automatic in years.
lifted or not: Preference. I'm going Spring Over Axle on my YJ.
Denis A. Baldwin
1991 YJ 99 Vortec 5.7L, SM465, NP205, 14 Bolt Rear, Dana 60 Front, 5.13 Gears, Detroit Lockers, 395/85R20 46" Michelin XML tires on 20" XD Wheels, Cherokee Offset Springs (10" front to back stretch total), Bilstein 5150s, 1in. BL, custom cage, Warn M8000, Double D Dash/OHC, 4Low Front Stinger Bumper, DirtWorx Rear Bumper WTC, Tube Fenders, Comp Cut, 1 Ton HD Kingpin High Steering and PAID FOR.