A 2" or 3" Body lift will help out tremondously. This will give you more clearance for the tranny and the distributor. It will also allow you to mount the motor higher and away from the front axle. I would really recommend installing a Chevy4.3L V6 Vortec.
do some searching on the pirate board, it's been covered a million times.
i'm planning a 350-sm420-np205 for my 85 mini, but i'll be going to 14bolt-D44 combo too.
if you want to keep your stock drivetrain i would recommend doing the 4.3 swap. more room to work with, and still a hefty power upgrade.
plus your stock drivetrain can handle the 4.3.
Helped a buddy put a ford 302 in a 86 4x4. with 3" BL and new torsion bars it works BUT, it is very tight fit(ford are smaller than chevy) Get awful mpgs and runs hot even w/ two fans and bigger radiator. I would go V6. My $.02
I have done two minis, one v6 one v8. The v6 is by far the cheaper swap and has more options for transmision and transfer cases. The v8 will require springs diffs, trans, cooling and posibly fire wall & rad support work. For my v6 swap i used a rad out of a diesel pu, bolted in to stock location. Advance Adapters kit for T 350 to Toyota case is the way to go so you can use two t-cases.