Cylinder compression issue: Should I fix it or not?

As has been said, pulling the head on a 4.0l, in a TJ, is relatively easy. This also gives you the chance to clean, inspect and replace other things while you have it apart. For example, putting in new freeze plugs, see picture below, if yours are rusted, could easily be done while the head is off. I'm not saying this has to be done, but that would be the time to do it. FWIW, anytime I pull a head, or intake manifold and exhaust, I just do it, because it's cheap and easy to do. You can also clean up the tops of the pistons and cylinder walls, and install a new water pump, thermostat housing, etc. You can be pretty much guaranteed that a shop isn't going to do this unless you pay them a lot more money!

The key to doing the job yourself is to:
- take your time
- have tools and help
- have a place where it can be left while working on it
- use only a quality replacement head gasket set, i.e. felpro
- clearly label everything...and I mean everything!
- take the head to a reputable machine shop and have it checked and milled (replace anything needed, based on machine shop recommendations)
- buy new head bolts (and torque them in sequence and to spec)
- enjoy the learning experience and satisfaction of doing it yourself

Others can add to this list, if needed!

 
Yeah that $1700 seems more appropriate for an engine with an overhead cam. The 4.0 is much simpler to work on.
 
That seems a little high but I’m sure they’re adding machine shop overhead to the estimate. It’s an easy job but you have to pay attention to detail and keep it clean. You’ll need to send the head to a machine shop for a resurface and potential valve job/springs. The price depends on where you are also. My shop charges $110/hour and were about $25 less than the local Chrysler dealer. A gasket set will be about $150 and you have to add coolant, oil, filter, etc. I’d also do the water pump, belt, tensioner, tune up, throttle body clean, and anything else I would have to remove. A good shop will do all of this with the job so the price may be spot on. Did you see a full breakdown of the bill?
 
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Again, confirm the compression on all the cylinders. Do a dry and wet test on each and write them all down. Without a good repeatable number you might be trying to fix the wrong problem. Bad rings will allow oil fouling and would be a much bigger teardown to repair. Or a bad valve guide, and several other options could cause this. Get another compression test and if it's the same as the first, get a leak down test done.