First off, the wheel size has nothing to do with power loss. It may feel as though you have less power going with a larger TIRE outside diameter as the tire needs to spin more times to equal the same revolutions, but again this has nothing to do with any power loss.
To answer your questions, I have 35x12.50R20 Mastercraft Courser MXT Mud Terrain tires on them. I just bought these for my previous truck and they only had about 1,500 miles on them. Are there better MT or AT tires out there? Yes, but for the low weight and low cost these were an easy choice for me. Handling is the same but a Mud Terrain tire with the very aggressive lugs does behave a little different - but I have only had MT's on my trucks for the past 15+ years so I'm used to it.
The "17" or you only drive to Starbucks" crowd needs to get over themselves. The 35x12.50R20 tires are pretty much same outside diameter as stock. The change in sidewall will not be noticeable unless you are really lowering the air pressure for serious off-roading. If you plan to do this, then keep your stock wheels and tires for the serious off-roading, but a 20" wheel with a 35" tire still leaves you with PLENTY of sidewall for almost any normal use - on and off-road (which more than covers what you mentioned above).
To clarify the weights: the VR-601 wheels weight 28.6 lbs. each, the stock wheel weighs 34.1 lbs each. The stock BFG KO2 tire weighs 64.53 lbs per the BFG website which makes the complete stock wheel and tire set up 98.63 lbs. each. The 35x12.50R20 Mastercraft Courser MXT weighs 65 lbs. (as an example, Nitto Trail Grapplers in the same size weight 77.84 lbs. each) for a total of 93.6 lbs. total on my truck. So compared to stock, my set up has a weight reduction of 5 lbs. for each wheel & tire. Add to the fact that rotational mass is more important that sprung weight and that savings of 20 lbs. is a good thing.
