Honestly, if your plan is to sell it when you're done, don't bother with the drop. Most folks that would be interested in your ride when the interior is done up won't care too much about how low it is! If anything, go with that 1" front kit, and combine it with a 1" or 2" drop block in the rear to level it out. If you want to lower the front much more than that you're going to run into MAJOR expenses, and the alignment will never be right again.
Energy Suspension makes upper and lower bushing kits, and a new set of shocks will cure your shock bushing woes. Check the balljoints up front while you're at it- it's cheaper to do it all at the same time, and that will be a good selling feature for prospective buyers as well!
As for cheap rims, I'd check craigslist.org or ebay for some 16s. Heck, if you can find a set of eXtreme wheels from a newer S10, they should tuck nicely, and they're a 16" wheel...
To remove your transfer case, you'd have to run a 2wd transmission. This would mean (at the very least- I may be missing other steps!) having your driveshaft shortened, making a new transmission crossmember, removing your front driveshaft, and possibly reworking your exhaust. In short, it's probably not worth doing!!! Just get a new transfer case from the junkyard and swap it in, or live with it being stuck in gear.
Good luck with the project- it sounds like you've got your work cut out for you!
-Phil at FBI