Welded axles are not horrible. I know many guys that run them and they have their place. In most cases the vehicle will be very twitchy above 30 mph. Spools do not work well on a street vehicle (especially in the front). They add a lot of stress to the driveline and steering. In the case of the H3...its probably too much stress for the tinker-toy front axle.
Also the H3 has very sensitive electronic traction control systems that depend on unlimited slip (open diffs) to function properly. Any drag or connection between hubs will probably result in the computer fighting the mechanical locker....whether it be automatic, full-time, lunchbox, spool, or welded. This is why the Eaton selectables are the obvious choice. They have full slip when not engaged and they can be electronically defeated when Stabilitrac is active. Without this unique ability...GM could never offer lockers on a production vehicle.