What Disc Brakes to Use

Since you already have the factory disc brakes I'd say use that.
Those aftermarket kits from eci and scarebird are meant to improve stopping versus OEM 9 X3 slant 6 drums at best.
You dont need to change the lower arms but you will ruin the lower joint boots in seperating. Replacement joint boots are hard to find.
Now I have questions for you... this power brake setup ? Is the pedal low or mushy ? You should have a high and hard pedal even if no power assist and using 2 feet to stop it today.
For replacement boots check out http://www.suspension.com/bjb.htm