There is no question that the 2 inch lug will work better in the powder, which is why this is the shortest lug made for long track sleds, and many have even longer lugs.
I would bet the 2 inch would work okay, but to be sure I would measure. What would restrict this track from working is the distance between the track and heat exchanger. Lowering the skid won't change that.
Changing the track will involve pulling the chain case anyway, and you might as well gear it down for powder running when you do that. Makes a big difference having the right gearing, which will be wrong if you keep the stock gear setup.
There won't be very much power loss by going from 1 1/4 to a 2 inch lug. But running in powder will suck the juice, so gear down, and get the carb corrected to the altitude you will be running at.
You don't need big engine to run in powder. Just the right paddle track and the right gearing and carb settings. You won't have a lake racer when your done, but doubt you have one now...anyways.