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my 3.5" has allowed me to do stuff step by step, cause i dont have much money to work with. first the lift, then the tires (32" by the way), then a SYE.
I have had a 3" lift on my 99 DD for almost 2 years now and love it. That considered, if a 4.5" lift is set up adequately, it'll work too. Properly setup is key when building a primarily DD though. If you step up to 4.5" and you're driving it daily, things like long arms, adjustable track bar, slip yoke eliminator, swaybar disconnects and deeper gears become a necessity.
One more vote for 3 1/2" & 31s or even 32s. XJs are still civilized at 3 1/2". We've got a 3 1/2" and an almost 5" in my family, both dds & untill I took the rear swaybar off my 3 1/2" lifted rig drove better than stock while the the taller one is turning into a trail rig. It drives like you'd expect a jacked up Jeep to.
I dont think it matters,as long as you do it with quality parts(and correctly set up)! Ive been running a 6" lift for over 7 years,it still drives better than stock and I hardly ever run my front sway bar.
I started off with 3", then 4.5", then 5.5", then 6.5".. I DD'd at 7" and 35's for about 2 years before I bought a civic. I was getting ~17-22 mpg and had a comfortable ride, but with not very many strait body panels left the girlfriend didnt like taking it out on date nite.