If you are going to do it, do it right: use a JK axle and a selectable transfer case. Then take your solid axle and use it to build a trailer for yourself.
The 2wd to 4wd swap is E A S Y and I recomend it, as a 2wd WJ would suck because of the solid front axle- UNDERSTEER!!! However, you should probably just byy a "FRONT CLIP" or a wrecked unit so you have a spare tranny and motor. I am sure it will be cheaper in the end.
FWIW- I like your "street jeep" idea A LOT. I have a 5.3L for my 2 door that I am STRONGLY considering dropping into a WJ in the near future. We will see what I can pull out of this 4.7 non-HO that I am working on.