I've worked with narrowed housings on some racing applications, dragsters, circle track dirt cars, etc. The Dana-type housing with the integral carrier is usually forged steel with tubular steel axle housings pressed in and welded into place. I have used an air-arc to blow out most of the weld and finished off by using a die grinder, removed the axle tubes and shortened them. It's a very labor-intensive operation and it requires a big lathe, a welder, and some pretty precision measurements along the way. Once the housing is narrowed, the axle shafts must be shortened the same distance and re-splined, or new axles must be fabricated.
Yes, it's possible to narrow an axle. No, it's not easy or inexpensive, and if you ever wear out or break an axle shaft, you're out of operation for as long as it takes another custom shaft to be made.
Jerry
