The red line can be abused but keep in mind that the more you do it the shorter the life of the engine. I used to take my old 1500 to about 8500rpm after some tweaks to induction and exhaust but really the question is why would you want to take it that high? What you need is a graph from a rolling road showing you where the torque is in the rev range. If it is all over by 7000rpm then there is absolutely no point in holding on to the revs unless it means shifting mid-corner.
The other facet to this is how many miles your engine has done, a high mileage engine is less likely to cope with the revs than a "fresher" one. There is also the matter of twisted blocks - some do and some don't, a good block will let you rev way past the red line and still make good torque while many have a distortion between the top and bottom that results in a misalignment of the crank compared with the bores, the result is that it still makes good power low down but at the top end it is lifeless.
Changing the gearing is best done from the final drive and more importantly it is relatively easy to change this way as you just drop the diff gears out to do it. Changing the gearing on the input and output shafts is much more complicated and not the sort of thing you want to keep doing if you find you don't like it. I used to carry three different final drive sets for racing but once I swapped to a turbo engine it proved to be a waste of time as the increased spread of torque meant it didn't really matter unless I wanted extra top speed.
The other thing to keep in mind is that you are spending you time in 2nd gear now but give it another few tries and some practise and you'll find yourself a whole gear higher but at lower revs because 2nd gear will be too short - this is simply a result of really getting a feel for how much grip you have and getting smoother on your controls.
You'll probably find the big limiting factor at the moment is suspension - unless you've really kept on top of it the bushes and dampers will be way past their best, even the strut top mounts can be improved on to get things smoother. If you want a proper in depth discussion on this just send me a pm.
