A Dana 20 is not bullet proof and anything can break given enough stupidity.
I have a completely rebuilt/never ran sm465/d20/18 with every option herm the overdrive guy could install in it that is collecting dust for over a year because I upgraded to an engine that will break the case in two with my "F it I can make that" attitude.
Yes, a terra low kit will be harder on your joints and pinions. That's why I recommended larger joints and beefing the pinion. I don't know why you wouldn't go double cv the cost is not much more.
Lots of guys myself included have got to the top of hills many times with nothing more then a 40/1 ratio. They had 100x raitos, big blocks, and big azz tires. I had a 4 banger, 28" tires and a welded rear.
Gear ratios and big tires don't mean jack if you can not get traction.
I don't see whats wrong with the 38's and ratio you currently have. Shave that pig and install a locker. If you feel you need more gear you can install it later.