A couple weeks ago I was planning on adding a hitch to my Cherokee for a bike rack. In the process of removing what was left of the old hitch (PO had cut the off the old hitch where it mounted at the frame) I found that somone had "fixed" a gaping hole in my frame with bondo and washers. Unfortunately they had done such a good job faking it and making it seem solid, that it fooled both me and the shop that inspected it. It was completely impossible to tell unless you had hit the frame with a hammer. Luckily it is pretty centralized as the passenger side of the frame is still solid and the drivers side of the frame becomes solid again shortly after the hole. Now that tasks me with fixing the frame. Is it best to cut a section off a donor XJ? Buy new steel tubing and weld it in? If so what dimensions? I need help on how to best address this damage as I would like to keep this jeep around for a while

 

I would cut out the bad parts and put in new parts . new parts would be better but if you can only get used the clean it weld it in then seal it inside and out .

 

Based on that one picture alone you have quite a bit of work ahead of you. It won't be fun but if you are capable of doing it yourself it will save a lot of money compared to getting it don't at a shop.

You may need to remove the leaf spring to give yourself more room.
​​​​​​Remove the fuel tank and the fill/breather pipes/hoses.
start poking/scraping/wire wheeling all around that area to determine how far the rust goes.
cut out all of the rusted metal and clean the good metal really well.
measure to find out what dimensions you need to match the replacement metal. You will prpbably have to do a bit of messing around to get everything right. It doesn't have to be pretty but it does have to be done right.
weld everything thing in and coat it with something like POR15.
Drill new holes for the hitch
put everything back together

That is a very generic outline of the process.