Well.....
Where to begin.....

I hate Jeep, period.

I have owned a 1987 YJ for 3 years now and have come to the realization you HAVE to be a god damn millionaire just to keep it running. Whoever thought that these things are a good 4x4 was clearly smoking FAR too much crack. This thing doesn't 4x4 good at all. Since the day I bought it i have been under the hood. Like I said, 3 years, only on the road for maybe half of that. I have only 4x4'd it maybe 6 times.

Now I have owned a lot of 4x4's and can honestly say that my STOCK 91 Zuki Sidekick,(May she rest in peace,accident=write-off), out 4x4'd my POS Wrangler by 100 times.

I just put $600 into this thing last month, Clutch, Pressure Plate, Slave Cylinder and Clutch Master Cylinder. Easily $3000 put into it since I bought it and i've had enough. It's gonna rot in my driveway till some dumb kid comes along that just wants to jump on the flatfender bandwagon.

Sorry I'm ranting, but seriously, IMHO, unless you POUR LOADS of money into a Jeep you will never have a good 4x4.

Karnage  

Let me guess, you have it lifted and you did not regear it and you fried clutch right? Jeeps of that era with 6's and sticks came with some pretty tall gears in them that had no business being in there to begin with before it was even lifted. I have a 79 J20 that I have owned for 22 years now and I pushed snow with it for many years until I retired it a few years ago to restore it and I have put "maybe" 300 dollars in it tops in repairs in that time (Ujoints, carb rebuilt, new starter and such) It was very reliable.  

Nope, I haven't done a thing to it performance wise. No lift, not even a K&N Air Filter.
You're definetly right about about the tall gears. Mine's got the Peugot 5 speed with a first gear that's almost like "bow-low". But either way I have obviously picked the wrong year/era and it has turned me right off of Jeeps. When I had my Zuki the funny thing is I was the one pulling full size Blazer's & Jeep's out of the mud or off of a log. Since I've owned it, hmmm, new carb, hub assembly's, rotors, rear leafs, shocks all around, entire clutch system, steering stabilizer, alternator, 2 batterie's, rad, steering box, fuel pump, t-case rebuild, u-joints. I've had the infamous under hood wiring harness fire as well. The only thing I still like about the damn thing is that 4.2 is sooo torquey. Shame is use's the same amount of fuel as a Chev 305, but that's the trade off for the torque I guess.  

Ah yes, you have the BA 10/5. Not best tranny. It has a 3.39 first gear. A AX15 is basically a bolt in replacement for it (it was used for 89 to 2000 with six) and it has a 3.83 first gear which is a noticeable improvement. Jeep replaced it with a NV3550 in 01 that was a 3500 is a case design to bolt in replace a AX15. You would do well to consider on of those options. The NV3550 has a slightly deeper first gear (4.02 vs 3.83) but it has a much taller reverse (3.55 vs 4.22) so overall I think AX15 would be better. Sound like you Jeep had a hard life before you got it and you are paying for someones folly with it. On the MPG, 4.2 were basically smog motors then and had low compression and retarded timing and MPG suffered a lot. Pre-smog 258's (before 73) ran really well and got better MPG too. Since you have a carbed 258, you might try advancing base line timing about 4 to 6 degrees for starters and using 89 octane and it should help power and MPG and given todays fuel prices it should be cheaper to drive it that way too. BTW, do not give up. You have one of the old good Jeeps as far as basic design. You just need to maybe swap tranny out for starters because as "luck" would have it you got one made between 87 and early 89 when BA 10/5 was used. Had it been a 86 it could of had a T4 four speed or a T5 five speed OD tranny. Both of them had approx 4 to 1 first gears.