I've been told that there isnt enough room in the '96 and older XJ's to do this. I don't know that to be the truth, but I'd give it a good look before I voted it down.
I also have new poly daystar mounts, so I don't have any worries of the filter smacking the frame rail...

Finally the adaptor off. Somewhere there is a thread that mentioned red loctite...... go figure. Another thread mentions a smaller filter that will install in place of the adaptor. Just pull the threaded nipple out of the adaptor and pull out the locator pin. I'm also thinking of a remote filter located somewhere where a larger filter will mount. Either way I think the adaptor is history.

AJ

Well I pulled my engine from a 98 Grand, so mine didnt even have the adaptor. I was going to take the adaptor off my XJ engine and swap it over to the rebuilt engine, but then I realized that there was plenty of room for the filter without it. I'm almost positive that I can still fit the larger filter there too...
But yes, the threads on the adaptor nipple are the same as the threads in the block. All you need to do is remove the alignment pin from the block, screw in the nipple, and install the filter.

I would just put it back like it was with the new O rings. You most likely will never have a problem there again.

FWIW, I just got done doing my oil filter adapter and used this tool that I have a link to and it made the job extremely easy. I didn't need a cheater bar or anything. Took all of 20 minutes to do