I'm glad I'm in California, at least as far as the rust issue goes!

It will separate at the red line. BFH and possibly some heat is about the only way to get it off the knuckle when it's rusted that badly in place. The puller will help get the half shaft out of the hub. You probably will damage the hub assembly from hitting and/or heating it, so if it's in your budget, and/or the XJ has seen high mileage, I'd replace them.

I'd try to avoid the Chi-Com no-name hub bearings, they have only lasted a year on a couple customer's jeeps. Try to get USA, Canada Japan or Mexico made ones. Timkin, BCA, Spicer, or Moog should be OK. (Mopar OEM, too, but the usually are overpriced).