I think you would be fine with the chain, but if not you can grind out the slotted holes on the swingarm to give the bearing carrier more room to slide up and down. Or you could take a link out of the chain or maybe a half link, but like I said I don't think you'll need it.
With that gearing and tires you'll lose about 10 mph on the topend
http://home.earthlink.net/~gellett/ltz400.htm