Heck with that much room you could put in almost anything. Plus a few southern imagrants.
If you don't mind me asking whats wrong wiith the old straight 8? Just can't find parts or can't find anyone willing to work on it? I've found its hard to find anyone willing to work on one of those Packard transmissions.
How about anything Caddy and V8. Any 50's or 60's should fit and could look close to factory. Even a 70's or 80's engine would look ok if you managed to keep the air filter and the Packard colors. If you don't care about keeping the older look then its all up to you and your budget.
The rearend should take gentle normal driving. But the drive shaft might take some real work to get to mate to the new trans. Don't know about the rearend gearing.
As for gas milage on a tank like that You might have a hard time breaking 20 mpg without something computer controlled and bigger than 3 litres.