Well guys, crapped on, yet again, by the EPA.
I finally got in contact with the guy who does inspections and whatnot. This is what he said:
1. The engine has to be offered for said vehicle as an option (in the states). If there was a diesel offered in the usdm XJ, then one could swap the engine in, and change the fuel type to diesel. He says this is pretty much how it goes nationwide, due to the EPA.
2. Another stipulation affecting swaps: even if I could swap in a diesel, said engine would have to be as new (same year as jeep) or newer, to swap in. The OM617 diesel wouldnt pass in my jeep (it's a 1999). I'd have to use a newer Bluetec or one of their newer CRD's.
3. He said you can retitle as a custom build, but it is very likely that the DOT would block your tag and try to screw you as soon as they saw the diesel box checked on your VIN. You could get away with farm use and trailering to OHV areas, but probably couldn't get it on the road.
4. Titling as a kit build isn't possible, at least in my district, as it's still clearly a XJ and did not sustain and significant body replacement or frame alteration.
So I guess that sums it up really, at least here in NC.
The only option I can see at this time is to buy a 1995 and down XJ and fly under the radar. Guess I'll start looking for one.
1992 YJ, 4.0 HO, 5-Speed (AX-15), 2.5" lift, 31" tires, Sony sound system, w/ pioneer sound-bar, copper-red paint, Loved it. Miss it. Sold.|1999 XJ. The "Cheep". 4.5" RC lift. 33" BFG MT. Train Horns. 2wd to 4x4 build. DD. Sold.|2003 WJ. 30" Michelin AT's. Curt roof rack. Train Horns. Stock. Soon to be lifted. DD.