Not being tested does not exempt you from emissions laws. Federally, it is illegal to remove emissions equipment.
And no, the 2.8 is a pile of junk. The pre 87 cherokee is not the same body as the post 87, and is also not a great platform. You're better off selling it and buying a 4.0 jeep.
Just a little clarification, considering I have dumped loads of cash into an 85...
2.8L can be a pile of junk, but there were 2 variations of this motor. A large journal and small journal version. Supposedly, the small journal version threw rods. I have no experience with them, since I decided to rebuild a large journal version. No thrown rods yet and still going strong...
Onto the engine management, the feed back carb is junk. Period. I omitted all that from mine and run a standard holley. It makes decent power, but it obviously lacks in the way off camber reliability of FI and it doesnt like high altitudes very much, your typical carb issues. It does also lack the same torque that a 4.0 has on the initial portion of the power band. Other than that, I cam'd mine, punched it out to almost 3.0L(doing some very rough math), threw an edelbrock manifold and headers on it, and also put slightly higher compression pistons in for shits and giggles.
In regards to drive ability, it does Ok. FI is far superior obviously, but a carb is simple, assuming you know how to tune one. One of the BIGGEST drawbacks to that drivetrain package is the trans, this alone does it for me. It has no OD and only 1:1 with lock-up and it drives me insane trying to go down the highway at 65+mph. Anything below is OK at best, but I have 4.56 axle gears. It is possible to fix this by swapping in a narrow bell housing pattern 700r4 from the s10 blazers, or finding a 4WD AX5 from a 4Cyl jeep, or taking a dakota 2.5L bell housing and mating it to a 4WD AX15, but you run into Tcase mating issues which further increase the cost of the swap. I cant justify that considering I eventually wan an LS V8, but thats just me.
To Cal's comment, the pre 87 years are actually different from about the frontish part of the front door forward. So this means, some Long Arms kits wont fit. Also some parts that are meant to be bolt on for anything above 87+ years, may need massaging or modifications to make work, i.e. a currie antirock, etc. Prior to 87, this was actually an AMC and when you take one apart, it becomes very clear as to why they went out of business, ha! There are plenty of ways around this though, for example, I am running a slightly modified clayton long arm kit for 87+ years.
If you can put up with all of this crap, then I would say keep it. If you want something much easier and don't want to deal with the hassle, then sell and get a 4.0. I did it for the sake of doing it, but I have been blessed to have the capability of dumping this type of cash (some people may call useless, but I digress) into this setup. If this is not you, then I don't recommend it.
It may be also worth noting that my jeep will eventually get a built-ish 5.3 LSX engine with a 4L60E, sometime in the next year. This alone should tell you that while the 2.8L is ok to mess around with and throw money at, it isn't an install and keep for the rest of your life type motor. At least not in my opinion. The S10 blazer guys and S10 pickup guys still run them though, so you could always sell them your drivetrain.
just my .02 cents. Hopefully this helps you make a decision.