You are not wrong as long as you nail down a bunch of "all other things being equal" type stuff. As in, toss a pre packaged long arm kit in the mix and then yes, you are wrong unless the guy with 37's has the same kit, then they both suck equally.On a 4 inch lift with no wheelbase stretch, you'll have better stability on hill climbs and more uptravel with 35's, which makes it better for rock crawling.
When you're in mud, uptravel means almost nothing, the biggest determiner is clearance at the diff/axle tube, which would make 37's worth considering.
Am I wrong?