My thoughts on the subject? A Wrangler (YJ) would most likely make a more reliable platform. Get a 90-up for fuel injection, put a full-floating kit in the rear axle, get the MIT slipyoke eliminator for the NVG231 transfer case, and the later 5-speeds are strong enough for most uses. A 4" suspension lift and 33" tires will get you just about anywhere, and since the Wrangler's a solid axle/leaf spring rig you can do the work yourself, in the driveway, with only common hand tools (air tools make it a lot easier though.) For severe 4-wheelin' you'll want lockers front and rear, low gears (4.56:1 or lower), and an NVG4500 manual tranny.....maybe even custom Dana 60 axles.
Now, what would I do with the Jeep you're going to look at if I wanted to make it a 4-wheelin' rig? First of all I'd lose the 3-speed tranny in favor of a 4- or 5-speed with granny gear. A Borg-Warner T18 4-speed was available in Jeeps, but there were so many input shaft sizes, gear ratios, etc, that it's impossible to remember them unless you're a dedicated Jeeper (I'm not.) A better choice would probably be an SM465 4-speed from a GM truck. These have a 1st gear ratio in the 6.5:1 range, which will just about let you go up a vertical wall. Anyway, suffice it to say that for any real off-roading you NEED a granny gear, and 3-speeds don't have them.
Next would be something you normally wouldn't think of - a new wiring harness. Early Jeeps didn't have fuse boxes, and the wiring wasn't really thought out or labelled all that well. Yank it all out and install a kit from Painless Wiring - even if you've NEVER installed a new wiring harness before, their instructions and the kit quality are such that you'll be able to tackle it. Just be sure to follow their instructions to the letter.
The next thing I'd probably do would be a transfer case swap, from the 2:1 low range Dana 20 (I believe) to a 2.62:1 low range Dana 300. The CJ5 may have used the Dana 18 T-case, though, which had a 2.46:1 low range but also used an offset rear differential, so if you changed the T-case you'd also have to put in a new rear axle with centered diff.
Engine swapping - save this for last, and build up an engine while the 304 is still running. You'll have to THINK about the engine swap from the beginning, because what you want to put in will dictate which tranny(s) you can swap in. My advice is go with either a TBI 350 or fuel-injected 4.0L or 4.2L (the old reliable 258.) The 350 is lighter, makes plenty of power in its stock form, and you can pick up parts for it at every store except your local grocery. An inline-6 is easier to work on because everything's right out there in the open, and the fuel-injected AMC sixes are very powerful with great torque off-idle.
It's like several other people have said - Jeeps (and 4x4s in general) are addictive, and you'll never be done spending money on it. If you don't know how to do your own repairs already, learn first! And start buying tools as well, if you don't have any yet - at a minimum you'll need a 3/8" drive ratchet, 3" to 10" extensions, and 6-point sockets (both deep and shallow), box/open-end wrenches from 1/4" up to 3/4" or so, assorted screwdrivers, a 1/2" drive ratchet or breaker bar and wheel bearing socket, and a 12V test light. You could probably get everything you needed at Sears for under $250.