RE: new motor
The 207 was only in the '88, and the Peugeot was used until mid-year '89. It's not as bad a transmission as many will lead you to beleive, mine held up fine behind a built 350.
There's likely a difference in the transfer case input splines, so they would need the input shaft swapped to interchange.
The '88 is carbed and the '94 is MPFI so not much will swap between the engines, besides putting the 4.0L head on the 4.2L for a performance boost.