I had geared mine down for the tight woods, big mistake when I hit the highway as I was always looking for more gears. I can't be much help there.
As for the dual sport kit; I just purchased the bare necessities to get through an inspection. All from Baja Designs and they were very helpful. Mine came with a dual element bulb in the back light so on a 97 you would need to purchase that in addition to the below:
hydraulic switch for brake light ($20-$30)
new socket/assembly for stock headlight. not sure what it's called, but it is where the bulb mounts into. They'll sell you this part and all you'll then need to do is buy a hi/lo bulb and plug into it. socket - $20, bulb - $15
hi/lo switch. I bought the one from the kit. $30
mirror - $15 (doesn't come with the kit anyway)
horn $20 - $30. They have one that runs off a 9-volt battery.
Total - ~$140.
One item the above is missing is the license plate light that is usually built into the brake light. You can get a whole new brake light either the same as in the kit ($35) or a smaller one that looks like the one on mid-eighties XR's that has the license plate light built in ($15). I just bought a license plate light that is for a trailer ($2) and mount in under the fender at inspection time. I don't ride at night anyway.
I wanted to do this not only for cost but to keep the bike looking stock. It was easier to put together than the kit as well. If you decide to go this route, e-mail me if you need help.
As for the tires, a good dremmel tool to neatly file the "NOT FOR HIGHWAY USE" from the side of the tire.