You are on the right track.
Normally on truck suspensions, the replacement for that size rivet is a 1/2" bolt, but since you are downgrading to a lighter max load capacity, you can use the 7/16" bolts. I would use a shorter bolt though, normally you do not want the bolt to extend out more than one diameter (1/2" for a 1/2" bolt) beyond the nut. Do not worry about threads being in the joint area, as your bolted connections are not the bearing type like the old rivets were. Here are a few tips based on my experience:
1. Clean the frame and bracket surfaces very well. You do not want any scale, rust buildup, or dirt in the joint when you bolt things together.
2. Install the bolts so the bolt head is on the bracket side, nut on the frame side. Use a hardened washer (washer for grade 8 fastener) under the nut.
3. Use Loctite or a similar locking compound on the bolt threads (I like the #262 (red) on anything over 3/8", but #242 (blue) will do). Not only does it help keep things tight, it lubricates the threads for better tightening.
4. Make sure bolt threads are very clean. If you do not use Loctite, put a little 10 weight oil on them.
5. For grade 8, (hex head ot socket head) I recommend tightening to 58 lb-ft of torque for 7/16" and 90 lb-ft for 1/2". Hold the bolt head stationary and turn the nut.
6. And I almost forgot, use the right nut. A low strength hardware grade nut is not the right nut for a grade 8 bolt. Get the proper nuts where you get the bolts. A 2H nut is a good choice.

And for the fellow using the button head screws - they do look more like the original rivets, but even though they are made of grade 8 material, they are not as strong as a grade 8 hex head or socket head. This is due to the button head itself. Normally, the manufacturers of the button head screws do not recommend their use for critical applications, only for light duty use where appearance is important, such as guards and such. Please be careful.

 

Always use grade 8 flat washers on a frame and never use lock washers. If a locking mechanism is desired, use crimp lock nuts. For frames, these are prefered over nylock.

 

Ok why would the washer and nut have to be a grade 8? I'm not seeing where the stress would be on them.

 

OK, I will get into some of the details. When you bolt your brackets to the frame you will have what is called a friction connection. (since your holes in the frame and bracket will have a clearance for the bolt to fit, and not an interference fIt for all bolts). A friction connection is very strong when done right, they are used everywhere from high speed machinery to bridges.
For a good friction connection, you need to tighten the bolt and nut enough to stretch the bolt (90 lb-ft for a 1/2" grade 8). This puts quite a load on the nut, and a lower strength nut will expand (dilate) over time and this reduces thread contact which can lead to the nuts thread stripping, and the nut "popping" off. You need a hardened washer (grade 8 washer) under the nut so when you turn it to tighten it, it does not dig in or raise burrs where it contacts the frame.
Think of the bolt, nut, and washer as a system. Grade 2 bolt, nut, and washer for light, non critical stuff, grade 5 bolt, nut, and washer for average to the beginning of heavy stuff, and grade 8 bolt, nut, and washer for heavy and critical. Put one grade 2 component in a grade 8 adssembly, and your overall integrity is at the grade 2 strength level.

 

Ok, that makes sense.

I have grade 8 bolts now, but only grade 5 nuts (why does that sound so bad? lol), I'll exchange them later, won't need as many washers or the lock washers anyways.

Thanks