The biggest tires you could fit would be a 29.5" tire (mine measuere 30" with a tape measure) its not enough to get FDI milage. I have VERY heavy ATS tires, and Yes around town it hurts mileage, on the highway it helps. I get anywhere from 20-25mpg with my FDII, street driving, depending how I drive. if I've been off road, I've gotten as little as 15mpg. 25 is when I'm able to set the cruise to 55mph for extended periods of time, it seems to really like that speed.
Of course I've shot that all to hell with my lift... Not sure what the exact impact to mileage it will be, but I'm sure not good.
The big difference between FDI and FDII are the off road extras that you can't install on a FDI:
Hill decent control
Break lock differential
the extra water sealing around the cab
I bought mine specifically to take off road. That's what I wanted to do with it so I knew if I got one with FDI, i would regret it, and wish I had FDII. if you know you are NOT going to go off road, or if you are, it won't be much more than a dirt trail or a little snow/sand/mud... get the FDI. However if you're like me and want to challenge yourself off road... get the FDII, that's what its meant for. MPG's be damned. (of course when I was out with a group of wrangler owners on monday, and the highest any of them got was about 17mpg, and my low is 20 in typical driving... It was hard to try to not be too smug about it)
How it looks with bigger tires/lift: