Seeing as though you have the legendary, awesome, 2.8 V6 of fury, I'd put a GM 3.4 or 3.1 in it with a 700R4 behind it. As for gearing, I'd run either a 4.10 or 4.56 (probably the latter) in the axle(s).
I also ordered some 4 hole fuel injectors to go on the new motor. At this point I'm just waiting for the county to spray the salt solution crap on the roads, then she will be coming all the way apart.
Maybe your thermostat isn't opening all the way. Also, make sure nothing is blocking your radiator. If both of those look good, I'd swap the water pump. My dad had a 54 Studebaker Conestoga with a SBC and had the propeller for the water pump break off (it was a new water pump on a new motor). I'm not saying that that is likely, but it is possible.
Is your thermostat stuck open? That could cause the coolant to circulate too quickly and not allow it to heat up. Also, if you are smelling coolant, have your MJ running and check under the hood for leaks. I'd also recommend checking your oil. If it looks like chocolate milk, you have lost your headgasket and it is possible that oil is getting into your combustion chamber.
Unsure on what kit to use, but I do believe you should. I want to you should do a SYE at anything after 4.5 inches on an MJ, but I would need someone else to confirm.
He got the yellow one running and driving, but doesn't think he will sell either now. He wants to use the yellow truck as a nice, restored daily driver and make the orange one a bobber trail rig.