I am thinking of lowering my gearing via my transfer case instead of the diffs.  I currently have 3.55's with TruTracs front and rear in a '94 YJ running a 4.0 5 speed on BFG Mud Terrains.  It does good on trails but not on rocks or anything really steep.  I am considering the Terrflex TerraLow gearing to get to a 57.1 crawl ratio (in first gear) for $1,200 plus install.  I have heard over revving can be an issue.
Is transfer case gearing an ok alternative to changing gearing with ring and pinion?  

only for trail usage while in low range, otherwise there's no benifit in it at all, if your on 33's using 4.56 gears (or even 4.88s if it spends alot of time on the trail,..4.88 will put the rpms at about 2500 while cruising 65mph) will be a far greater benifit than the t-case gearing. consider this...

in the stock 2.71-1 low range with 33's and 4.88 gears first gear final ratio is 50.65....

while going to a 4.1-1 t-case low range, with 33's and 3.55 gears, the first gear final ratio is 54.23...    (2.71lr, 3.83 first, 33" tires, 3.54 gears is 36.74 final ratio)

so..the biggest all around and useable advantage is gonna come from a differential gear swap..it will improve the power and mileage also.

what size tires are you running, or plan to run on?

teraflex has a kit with a 4.2-1 low?...