Need some serious help with a 1987 project Jeep!!!

[SpitAndDirt]

I am not new to fixing vehicles, but my friend has now asked me to help him with a Jeep he will be receiving for FREE. The Jeep is a 1987 Wrangler with the 4.2L and Auto transmission and has been sitting for quite some time, at least 5 years in a covered garage. It has the usual dust and musty odors, a dent in the drivers door, and the front bumber is bent on the end. It has low rust from my very cursory inspection, however, and here's the catch, the engine block has fractured( YES, FRACTURED, not cracked) at the driver's motor mount bracket attachment point. Apparently, someone was driving it in a field and hit something, what he hit I have NO clue. I just know that it had to have been something hardcore because I know that Jeeps are meant to take a beating. I am not too keen on the idea of having it welded as I know that it takes heating the cast iron block first to 300 or so degrees so that you can weld on it. And there are not too many experienced people in my area that can do that. I have helped another friend before with a 91 Wrangler, and I know the 4.0L is a better motor in so many other ways. Here are my questions: first, I would like to know all opinions concerning a 4.0L swap with the orginal 4.2L or should I source out another block and rebuild the 4.2? I have rebuilt Chevy, Dodge, Ford, and other assorted import engines in the past, so rebuilding from scratch does not bother me in the least. I would rather save the money and headache of buying reman and pick and choose parts of my liking. Second, while the engine is out, would it also be a pain to convert it to a newer manual transmission with hydraulic clutch, or should I rebuild the Automatic instead. Being that this is a FREE vehicle and my friend will be using it as a DAILY DRIVER AND SOME MINOR OFFROADING, the budget is actually anywhere from $1500 to $3000. Sorry for the long post, but any and all opinions are appreciated. -Chris