absolutely 3" can never have too much lift! lol
as for the hitch, you probably can't mount it to the top, as it shouldn't mount to the bottom... most hitches mount to the sides as there's more mating surfaces, and will give a better grab on the frame... not to mention your hitch most likely comes down from the outside of the mount, if it is mounted to the bottom of the rail, so the vertical part would be flush with the outer flat part of the frame, and this would hit the bottom flange...
it is also not a good idea to weld or drill the flange... i would just go to a shop, and have them custom fit one, or go to a store that sells them, and know's what's up, and give them your measurements, AFTER the lift, say, this is how wide the frame is, this is how tall the frame is, and this is how low i want the hitch to hang, from the frame (to clear your bumper) dollars to doughnuts, you will be able to find a bolt on one, that fits perfectly, with nothing more than some drilling...
worst case scenario, go get the one for your truck, and pay a guy in a welding shop $40 to weld it back together for you, after you shorten it...