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#2 is as good as it gets for these trucks & actually is better than #1 because it puts a slight load on the needle bearings in the U-joints, keeping them moving & evenly lubed.
No shock lower extensions is not helping things at all.
They're swinging on the mounts as opposed to compressing.
Get those on there along with BellTech #6658. That'll get those shocks back to a much better, almost stock position where they'll work as they were designed to.
What Co. did you use for the flip?
DJM is adjustable for pinion angle. B/T, & their derivatives are not.
For the B/T, you'll have to use pinion wedges to correct.
That requires using a leaf spring center bolt with an extended head in order for that to reach through the shim & into the hole on the spring perch.
You can make your own extended head bolts. GM lists 4 lengths for these trucks. They still sell 'em. Cheap.
C1500's use the shortest. Order the next length. Crank a nut to the head with some red loc-tite. Grind off the nut's shoulders down to the bolt's head diameter.
Notched the box cross member?