--As for shocks, you might try something like this:
http://www.4wheelparts.com/Lift-Kits...&t_pn=SUP85150
4WheelParts has quite a selection of brands if you don't like Superlift.
-- For the shackles, you've got the idea. I would loosen the spring bolt, then lift the rear of the truck enough to slide out the bolt, then lift it the rest of the way up and do as you described (punch rivets, etc) Shouldn't need to lengthen drive shaft. And no front flip. Just the back.
-- And lastly, the cam. What they are referring to grinding is the area highlighted here: (notice the faint red line)
**Note: the seat shown is for the exhaust valve but you get the idea.