There's not a lot of info here specific to the TJ so I thought I'd start something beginning with my own experience. I'll keep it simple for the guys who are new to wheelin.
First and most noticable upgrade to go with is Lockers. There are many types and don't go cheap on these whatever you do. You really do get what you pay for. Stay away from the Lockrite lockers! For guys who are deciding to do the weekend wheeling and still use it as a daily driver, I'd go with a Detroit Trutrac. They are clutchless automatic locking diffs that don't need any more maintenance than the dif that your truck came with. They don't whine or click while driving on the road and for the most part they lock up when you need them to. They are decent on regular trails and if you find they aren't locking up, just touch the brakes a bit while on the gas and you'll be on your way. I would not recommend any auto locking diffs to guys who find them selves on any sort of steep rocky terrain. If you're climbing a rock face or steps and your tires aren't locked, you'll no doubt have some trouble but the danger is when your diffs do lock up and you're on you're way up. This can easily send you right over on your roof. I've been too close to this too many times. If you're looking for dependable traction all the time you'll definately want a full time or selectable locker. Don't waste money on the half way stuff and while you're putting lockers in, change your gears now if you're planning on running larger tires.
As far as tire size, you can fit 32" tires on a Stock TJ without rubbing depending on the wheel offset. With a 4" lift, and a 1" body lift and you'll be able to run 35's.
Keep your body lifts to a max of 2" as more puts too much stress on the now longer mounting bolts. Ideal is a 1" Body lift as there aren't too many major issues that you'll need to address. Things to modify in a 1" body lift are fairly simple and most guys can do it with very little knowledge. You'll have to reposition the fan shroud, adjust the steering linkage(very easy), and add a bracket to the transfer case shifter assembly from beneath the jeep as well as the 10 new spacers. Don't use hockey pucks here guys. they don't provide the stability that the proper kits do. You may also break a couple of your old bolts taking them out depending on the condition of the jeep.
I would suggest adding a 1" Motor Mount Lift at this stage as this will have an effect on your fan shroud positioning.
As far as lifting your jeep goes, it's all about the tire size, not how tall you can get it. Maximum clearance with Lowest C of G possible. The Highline Kit by AEV will let you get up to 35's with no suspension lift. If you're deciding which lift to get, there are a lot of good ones out there. All I can say is stay away from Rough Country Products. They are cheap for a reason. They wear out very quickly and you'll be replacing parts every year or two. I personally don't know anyone who has gotten more than a season out of them. As far as long arms and short arms... go with the long arms. More money but worth every penny. Long arms give you more travel, and keep your suspension geometry closer to what it's supposed to be. Short arm lifts are terrible on the road as every bump translates to your steering. Not good. Going back to the Body lift and why to put in a Motor Mount Lift is now that you've got a nice Long arm lift, you'd be changing your skid plate. With a Flat belly skid plate, you gain clearance but you also lift your transmission which now has room to move up and will now be in stock alignment with your engine. You will Need a Slip Yoke Eliminator and a CV style rear drive shaft for any lift 4" or more to eliminate the driveline vibrations.
If you're thinking about making a stock TJ a more capable rig without going all out, put some decent tires on it and go with ARB Lockers. You'll be amazed at what it will do. Also, get some quick disconnects for your front sway bar. Set up this way you'll appreciate the money spent.