When i did emissions in my old jeep i had the exhaust dumped right after the muffler, before the rear axle and it went fine. The guy crawled underneath and probed the pipe. :eyes:
For the fender cover, i just used a pair of scissors to cut it off even with the bottom of the fenders. Since you plan on keepin your bumper on your horns will be fine. Bottom lip might as well rip it off too.
Ive always just ran black Cragars since theyre so cheap and it doesnt really matter if they get scratched or whatnot. But i love seein Moabs on an XJ. Looks very good. I also like the ZJ/TJ Canyons? I think thats what theyre called. They look pretty sharp too.