By no means do I know much about hitches, but from the picture alone it appears that a square spacer was used for the hitch to attach to: is this normal? I would think you'd want the hitch to attach directly to the frame rails. So perhaps if you investigated a new hitch design you could gain the height you wanted and the towing capacity you want. A new hitch would allow you to get rid of the casters, which is what is probably causing you to drag your bottom, and nobody I know wants a dragging bottom. There also seems to be some rust in that area and I would investigate that too to see how bad it is.
I recently put HD Bilstein shock all the way around my motor home along with a steering stabilizer. I purchased them from Amazon; the shocks were around $90 each and the stabilizer $115. It greatly improved the handling. I put the stabilizer on myself; it was simple to do and the factory stabilizer was well past worn out. If your going to tow something, you'll want a good handling rig. Also, I'm wondering if you lifted the rear end of your MH, if that would change the caster on your front wheels either for better or worse as far as handling goes? If you still are running on the factory shocks and stabilizer, it's probably time for a change anyway.