The Y-pipe replaces the two pre-cats with straight pipe for less exhaust restriction. The main cat stays and I am told the truck will still be emissions legal with this setup.
Headers don't help much simply because the stock manifolds flow pretty good already. If they cost $250 I'd jump on them but JBA is the only company that makes them and they cost $650.
As far as bang for the buck, the Y-pipe will get you more improvement than headers and for less money. I'm not saying don't get the headers if you want them, it's your money.
And of course a cat-back exhaust. There are more choices for Gen 1's. I have a Gibson on mine but it is the only one available for Gen 2's. Gibson, Heartthrob, and I think Magnaflow make kits for Gen 1's or you can always get a custom system bent up. The Heartthrob is a dual out-the-back system. J.C. Whitney has it.