7" for clearing 37" and yes a long arm of some type. 5" for 35" is about normal for 2500 v8 gas trucks. 5" is pushing it for long arm clearance it can be done but things need to be cut, as with almost all the long-arm kits out there. In some cases you have to cut the cab mount in others you have to cut off the lower control arm factory brackets, so almost a no going back deal.
I recently installed a used Fabtech short/long arm setup in my truck (just the control arms and brackets), big difference over the two short arms major improvement. So far I am impressed with these parts, well built top grade bolts and hardware.
Some speedometer info
Cp from my notes.
Chassis Diagnostic Manual. There, in section 29A, it explains the procedure needed to program the CAB for specific tire sizes. [The CAB sends a pulse stream to the PCM, which drives the speedo/odo; to change the calibration, the CAB needs to be told, among other things, the number of teeth on the RWAL sense ring and the rev/mi of the installed tires.]
So, if you change your tire size and your dealer hasn't a clue as to correcting the speed/odo, point him to the Chassis Diagnostic Manual, section 29A. It's all there.
NOTE: the 98 1/2 models do not use speedometer gears and the speed metering is taken from the ABS sensors. To change "gears" for different tire sizes requires reprogramming of the PCM. Dealers have been having problems with this procedure, and many axle ratio/tire size combinations are not available.