I believe you can do this! As everyone has pointed out, the engine sits too high in the frame. Cut the front downtube just below the flat plate and across from where the cooling hose attaches. Cutting the frame there will give you more room to drop the engine down and move the bottom of the engine forward. This will make lining up the sprocket easiler. There is no way around spreading the rear section of the frame to make room for the intakes. You have a good foundation there. You may look at using square tubing and a wider swingarm. Maybe the swingarm from a KTM 950. Check it out. It may be wider and a better match for what you are wanting to do. The 950/990 saddle tanks would also solve a couple of your problems.
Make your engine cradle with the square tubing and use 1/4" flatplate to make the swingarm mounts for either side. Many bikes use flat side plates to do this. All you really need to keep are the backbone and the neck. The rest can be dealt with. It appears that a longer backbone would probably work better. Giving you a better (further back) attachment point for the sideplates (swingarm plates). Cut the backbone and have a new tube turned to fit inside the backbone tube. You just created all the room you'll ever need.
Trust me, I know what you are dealing with there. It can be done. Take your time and think it through. I'd also consider getting rid of the linkage and go with a simple linkless rear suspension. My Diesel KLR is getting WP 48mm USD forks from my 950 ADV. The 2008 Kawasaki KX450F trees are already fitted to the frame with a custom steering stem. The 48mm WP forks fit the KX trees perfectly. I just recently fitted a 1985 KLR600 aluminum subframe and seat to my 2008 KLR frame. We dropped more than a few pounds with that mod. She's coming together slowly but the design is solid. I'm in no hurry to finish it. Not much of the original motorcycle is left and it will be very lightweight.
2008 Diesel KLR456