Welcome to BLF! That is a nice Fenix, quite vintage by today’s standards but I’d still use it as is in a power outage or similar!
Now, for modifications… Unless you’re looking for a moderately difficult project, and have a reasonable budget to throw at it, then I’d reccomend selling it and just buying a Convoy or similar.
Swapping LEDs is moderately easy if you can open the light head (probably has threadlocker), but you will not gain substantial increase in output without modifying the driver. The XML LEDs are 3V, standard 5050 footprint.
If you wanted nicer light quality and were happy to keep the rest of the light stock, I’d swap the LEDs and just use NiMh cells.
For more involved work:
The original driver is expecting a voltage of 4V(ish) to 6V (4x 1.5V alkaline D cells).
A regular D cell is c. 34mm diameter x 62mm long.
The lithium cells you are describing are nominal 3.7V, 3V when empty and 4.2V when full. The naming convention for cylindrical cells is DDLL0 where DD are diameter in mm, and LL is length in mm, then there’s an 0 on the end to indicate it’s cylindrical e.g 32mm dia x 65mm long.
32650 cells might just about fit if there is enough compression in the spring, but with 4 in series you’ll have up to 16.8V which will dry the stock driver.
With the stock driver, you have a mis-match between “normal” lithium ion voltage (NMC etc) and what the driver “needs”.
You might get lucky and be able to source a replacement driver of the correct dimensions and voltage(s) input but I know of no driver which would retain the dual side switch functionality.
Lastly, be aware that mis-matched (voltage/age/capacity/impedance) cells in series can pose a danger of reverse charge and explosion.
