"Selec-Trac" is simply the name Jeep applied to the high-end, optional transfer cases. The Selec-Trac in an '86 would be a 228 or 229. These are "okay" transfer cases. They are strong enough, especially for the absolutely anemic 2.8L engine, but they do not include a locked 4WD high range. In high range the 4WD is full-time only, which means that there is a differential or viscous coupler (the 228 uses one, the 229 uses the other) that allows the front and rear drive shafts to operate at different speeds. If you want this Jeep for serious off-roading, this is not considered to be "a good thing."
The 2.8L is a Chevy engine, the same engine used in the early baby Blazers and S-10s. It's a dandy boat anchor -- for a small boat. Both the Pontiac 3.1L and Chevy 3.4L (the versions for rear wheel drive cars only) are direct fit replacements, except they don't have provision for a mechanical fuel pump like the 2.8L does so an external fuel pump is required. The flex plate or flywheel also needs to be rebalanced to work with the 3.1L or 3.4L engine.
Depending on what your future plans might be, be advised that in 1987 Jeep redesigned the sheet metal to make room for the longer in-line 4.0L 6-cylinder engine. That means that your options with a blown 2.8L are basically a 3.1L or 3.4L, or going back down to a Jeep 2.5L 4-cylinder engine (which is a very good engine, being the shortened version of the 4.0L). Trying to convert to a 4.0L would be more work than worthwhile.