To make life easier I'd grab a 5.3 with a 2wd four speed auto behind it all from the same vehicle and slide in as a unit. Pile easier than adding all the manual trans grubbins to get that side of the swap working and should be cheap and cheerful. I'd be more worried about mounts and the oil pan. $2500 sounds pretty decent...
I doubt you'd get to 350 with a tune and headers on a 5.3 but you wouldnt be far off. Ive got an LS1 thats getting an LS6 cam ($150ish and small in the world of cams) and LS6 heads ($400-$700). This plus a tune should net me 375ish. Long tubes would add another 15-25hp with a tune.
If you do a bigger cam package you will get more power but it will cost you around $700 for the cam, springs etc. Dont forget the LS6 intake and fuel rails so you can actually make use of the cam ($400)
As stated above T-56's are gonna run you $1000-$1500 pretty easy. Then ad in a clutch ($300 minimum)
You are going to be WAY over $2500 quick. If your doing this stuff don't tell me your not going to throw in the the LS6 oil pump and LS2 timing chain upgrades right? Believe me I could have dropped the motor in for the car for about $500 if I left it alone but I'd be on an 8X,XXX mile clutch and leaving over 100 hp on the table.
Greg is spot on . . . a LM4 (first version aluminum 5.3) with a Z06 cam, OTS block huggers, + 87 octane tune = ~297whp/306wtq through a 4l60e.
Yes, I was talking about getting that power from the LSx engine. The 4.6 takes tons of work to get to that point. Simple head and cam swaps don't do it.
This is honestly all just talk at the moment. I don't even have the cash to do this at the moment. The wife's bugging me to get a new(er) vehicle, but it's got to be what SHE wants, not what I want. That's not gonna happen. She wants me to get a truck, I'm not a truck guy. Maybe I'll tell her I'm getting financed for a truck and show up in a Mustang. I smell a fight...
Why not just drop a good ole 350 in? A lot cheaper.
I am all for swapping stuff. Some of my ideas:
Duramax into a 66 Bonneville (current project)
STI awd into a 73 Maverick (too much cost, not enough return)
302 windsor into an 87 Cutlass (almost completed and then sold it)
I have no problems with swaps, but sometimes the cost is pretty crazy. One of the things you'll run into is having to fabricate an oil pan. Ford stuff has front/mid sump, and LS-engines are rear sump. Not a huge deal except that the LS-engines use cast aluminum pans, and rely slightly on the rigidity of that pan for bottom end strength.
Its enough of an issue that the common thing to do when swapping an LS engine into something else is to fabricate/notch/cut the crossmember to fit the engine.
How about going big with a Terminator motor and 6 speed. I think Car and Driver did a story about some Ford engineers who did the same swap on a P71. One or two of the Bondurant school cars were done this way too.
The 4.6 DOHC Terminator motor was an idea, but the price for one of those engines is still in the $3500 - $5000 range. Also, the 2000 has a narrower frame rail than the 2003+ and thus the DOHC engines are a rather tight fit. I may just look for a replacement P71...
And turbo it...