You stuffed a rag in what hole, then pointed the differential up? A hole in the axle or were you referring to the
transfer case? I have never heard of anyone ripping a hole in an axle tube.
I also don't understand what you mean by "the axle is hitting the fender flare"? The only way I could see that happening is if you broke the centering pin in the leaf spring. You will definitley want to check it as you repair the perches.
BTW... you don't need a Jig to reweld the perches. Measure where the old perches were from any reference point (Usually done from the brake backing plate). Then grind off the old welds. Put your new perches or your cleaned up old ones back on where you measured. Bolt it back up with the u-bolts and plates before doing any welding. Use a hammer to bump the differential up or down until it is pointing straight at the NEW
transfer case yoke (if you point it toward the old location of the slip it will be too high). Use a straight edge to verify that it is pointing straight at the yoke, then bump the pinion down 3 to 5 degrees. You can use a cheap magnetic angle finder if you want to be exact. Tack weld the perches in place, double check everythign, then drop the u-bolts out and weld it in.
The reason you go 3 to 5 degrees lower with the rear pinion is that the torque of the engine in a forward gear will try to rotate the pinion upward. Setting it lower helps compensate.