The steering is fine as-is, the Dana 35 not so much. The Dana 35 is the least desirable XJ axle because it has the potential to snap axle shafts even with an open differential and small tires.
If you have all the necessary on trail repair tools, self-recovery gear, skid plates and tow hooks, commonly needed spare parts, extra fluids, survival gear and food, your best upgrade would be a much more durable 29 spline Chrysler 8.25 rear axle from a 97-01 XJ Cherokee. Swaybar disconnects are beneficial. If the budget allows, a LockRight type locker in the Chrysler 8.25 rear axle will add to the off-road capabilities of your XJ.