One of the benefits of diesels is you can (and should) run bigger tires without needing gear changes. Bust out a measuring tape, and let us know... should be interesting...
bigger tires would be the gear change, and in really all cases are required, unless you plan on changing gears. I don't really know if its a matter of being better or worse, there are just a few things you want to take into consideration. Availability of parts, cold weather operation (i'm not sure if its direct inject or not) like others have said size of engine, and then weight. Besides the VW 1600 or 1900 diesel, the only real option for small-ish diesels are the cummins 4BT and 6BT. 6BT being much to long though, but a 4BT might be a pretty cool swap, they put them in FJ's all the time (older not newer). Parts are available as they are fleet engines, you'll see them in bread vans and such and parts are available. Lastly, they have A LOT of power all around, 105 horsepower and the mid 200s for torque. Its a fairly big engine, but i could see it working. With 70hp, thats right around the 1.3s range, but the torque is pretty good. With those power ratings, you shouldn't have any trouble getting it on the freeway, but it won't be any faster than the 1.3, it should be a little peppier around town though.