It's a little hard to tell from the pic but it appears as though about half way up the plant, the stock gets quite thick. This is where you could cut it and take that piece and put in a small container in fresh soil to root. Of course, as I mentioned, remove the leaves from the bottom of the cut piece so you have a stem to place in the new soil (use a very small pot too).
Then the base with the pups can continue to grow. Yes, I would leave the pups with the base until they are quite established then seperate them.
Please remember though when a plant becomes root bound you want to only move it to 1 size larger; otherwise, it is too much of a shock if you put it in an overwhelming size of an area.
I have had very good experience with cuttings from cacti and succulents in making new plants. If you are unsure of cutting the entire top half off (which I understand), snip just a little off the top and put it in a tiny little pot; place it in the same location as your original plant. The plant seems to be quite happy there with the amount of light it is receiving.
My concern is it is getting very top heavy and may just break off eventually. I've known people that take an aloe 'leaf' off and stick in dirt and it starts to grow! Mother Nature is just amazing...
I hope my post has answered your questions. Please let me know what you decide. Good luck.