I have an '06 TJ Sport and I've run blues at Paragon on just a 2" coil spacer (Rubicon Express kit, which does come with new shocks along with the spacers), and let me be the first to tell you that the coil spacers work just fine off road. Granted, if you're going with larger than stock (stock being 30-31") tire sizes you're going to want some sort of 3-4" lift. I'm attempting to save up for a 3.5" RE short arm myself, as I'm now running 32" BFG mud terrains and I have concerns about how my Jeep is going to perform off-road. With the larger tires I'm afraid I'm going to run into some tire clearance issues, even though I don't have swaybar disconnects (yet). I guess I'll find out in a couple weekends at the Winter Crawl at Rausch Creek!
Also, you wont be able to tell for sure if you need the TC drop until you install the lift. Most places will tell you that with just a 2" lift (spacer or otherwise) you shouldn't need it, but each Jeep is unique and you may have issues that require one. My TJ had driveline vibrations after I installed the 2" lift and I ended up having to install a Skyjacker TC drop to fix it. The good news is that the TC drop kits are cheap and fairly easy to install. I would recommend not getting the TC drop initially. Just get the lift and see if you have any vibration issues. If you do it'll be easy enough to pick up the TC drop to fix it.
And lastly, with just a 2" lift, you WILL NOT need to extend brake lines, re-align your drivetrain or any of the other stuff you mentioned. The most you would have to do (other than the lift itself) is the TC drop and you *probably* won't have to do that.
