As Ian said, pretty much anything sharp and small enough to get back there will do the job, I used the saw on my Leatherman. This link shows you how much I trimmed, which leaves me about a 1/4" free at full compression w/ the wheels turned (according to my friend, I couldn't see.)
http://www.beatdriven.com/xterra/tire_trim.jpg

It looks like with the amount Ian trimmed you could still keep the stock mudflaps attached (you might lose one of their mounting bolts but they'd stay on there fine w/ the remaining ones.)

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gothamist -- MAXC member
http://www.beatdriven.com/xterra.html

[This message has been edited by gothamist (edited January 09, 2001).]