i have an 03 tracker with the 2 liter 4cyl engine and auto tranny. im finding that i need a little more performance out of this engine and was wondering if an exhaust upgrade would help much. its just got the factory exhaust on it now. does anyone have any experience with larger exhaust system, my tracker has 2 cat converters can they be removed or would this cause issues with the computer. thanks

You have two O2 sensors, one precatalyst and one after the first converter.  Both of these sensors are critical to engine management, and will throw codes if they are out of specs.  The second converter does not have a sensor, so engine controls doesn't care what shape it is in.  That being said, there are State and Federal requirements regarding having these converters while operating on State or Interstate roads, and high population areas usually have annual inspections to ensure they are functioning properly, and your emissions are within specs.
Larger freer flowing mufflers, converters, and exhaust systems do seem to increase power slightly.  About the best increase possible could be around 10% of your 125 hp.  The stock hp is rated with all new and functioning equipment, so going beyond that level is hard to do with a motor with many miles on it.

Yes, the 2 liter engine will run just fine without the two cats and won't throw codes  providing your exhaust has no leaks from the header back beyond the sensors and that your engine controls and components are operating properly, as Brd Hntr stated.  You might want to check locally to make sure you don't make a modification that you will have to correct before your truck passes inspection.

Restricted cats can reduce performance. 

Getting MORE performance from the 2 liter... ?  Short of helping it "breath" better or fabricating a turbo for it, you have just about what you can get out of it in the stock configuration.  The best way to obtain more usable "power" is by keeping the systems in good shape and increasing the differential gear ratio from 4.88 to 5.12 (for example).  Especially if you are running larger tires than stock size.

thanks im only running 215/75/15 bfg km2 tires at the moment. local exhaust shop recommended i keep the first cat converter in place remove the 2nd converter and upgrade the exhaust pipe to 2 1/4 pipe with a flowmaster turbo style muffler. does this sound like a good start?

Since I have both 2" cat back exhaust and 5.12 gears on my 01 tracker 2.0L 2dr 4x4 I will give you my opinion. If you decelerate quickly sometimes it will throw a PO400 trouble code but for me it was worth the noticeable power increase. And 12hp more sounds about right noticeable but not going to snap your head back.I did the 5.12 gear swap from stock 4.88's and it was a good improvement when running my 31x10.5x15 mud tires. If you have a manual tranny the improvement is more dramatic. I can run 80mph on freeway up and down the mountain passes at 70 mph. and I can tow my tent trailer up passes no problem also. If you are going larger tires I feel these are both must haves

thanks captwoody i have the 2 liter but with the 4 speed auto trans stock gearing my exhaust guy wants to do a 2 1/4 exhaust eliminating the 2nd cat as he thinks its getting plugged up. ive heard from others that going to a too big exhaust will hurt your bottom end torque. do you think 2 1/4 is too big ?

You do need the front cat and both O2 sensors, or your ECM will throw codes, which is why your exhaust man was leaving them alone.  Research says there is no hp benefits to a restrictive exhaust.  The catalytic converter will provide enough backpressure to prevent unburned gasses from flowing out through the exhaust, decreasing your mpg.
There's three factors that determine how well a motor works.
1) the air/fuel mix
2) the air/fuel mix
3) the air/fuel mix
Almost any work on a motor will effect one of these three.

I kept my front CAT housing (minus the packing) along with both O2 sensors and my 2 liter has run like a top for well over 50K miles now.  No codes thrown.  I retained the stock exhaust on mine other than I ran a turbo muffler for a while.  When it finally burnt out, I installed an OEM tail pipe and muffler assembly and don't really miss the turbo muffler.  The tires sing enough at all speeds.  The noise level inside is slightly quieter now at idle without the turbo muffler.  When I was at cruising speed, the turbo muffler really wasn't that noticeable anyway.   

nprecon, you are lucky.  You should have at least P0420 code, which is Catalyst System Low Efficiency on a 1999.  On my 05 motor, the catalyst started to rattle in the housing, then the codes started intermittently and finally would not clear.  When I replaced the catalytic converter (which was empty), the codes never came back.

I only had O2 sensor codes initially when I first modified the CATs and exhaust and hooked my exhaust back up.  After a couple iterations of codes displaying, I got under the truck with a flash light and could detect two very tiny pin holes (by their tiny carbon tracks on the clean weld) where the weld wasn't complete on a joint.  Closed up both of those pin holes and all has been good from there on.