emgine swap
for starters, is your engine "done" for sure? smoking etc? or does it just need a really good tune up? if you are getting 10 mpg then it seems like that carb is overfuelling. has anybody done a compression test, leakdown test etc to tell if it is really done or if it is something else? also, check the peripheral stuff like the carb. those rochester carbs have a habit of wearing out the carb housing where the throttle shaft goes in, so the throttle plates are never in the same place twice. hard to set an idle mixture like that. anyway, it would mean a new carb. is the distributor wore out? mechanical advance working properly? plug wires, cap & rotor, pcv valve, fuel filter, air filter, hoses and belts? these are all the things that the shop is gonna want to change with a new motor
on the 327, they are more of a high rpm engine, in my opinion, so it depends on what you plan on doing with the car. is this 327 a rebuilt (professionally with warranty) or a used motor (with documented history, and not sitting around for a couple of years). for power you can't beat cubic inches, but the 350 isn't known for it's awesome economy. have you thought about an ls conversion? you get fuel injection so good economy right off the start. and the wife can just get in and go like a new style car, no choke or pumping the pedal. probably out of the budget though. how about the 383 option. a buddy of mine put one in his truck. where he got 13 mpg with his 350 he got a bit better with the 383, but quite a noticeable increase in available power. check with a gm dealer for crate engine prices and what actually come with it (oil pan, valve covers etc). you can also check out the ramjet 350 at gm. it is fuel injected and ready to drop in, hook up power, fuel and go. quite a few hotrods are running that engine for that reason. good power and economy. looks good under the hood too.
anyway, all I'm saying is to check out all your options before you decide, after that it's too late. make sure you get a firm quote on the job before you commit, ask questions. what is included and what is "as required" if you go with a rebuild. what will the warranty be? some shops will quote high to include stuff like coolant, belts, hoses, clamps etc, and then when you pick up the car the bill is actually less than what you were quoted. some shops don't. there could be a big difference if you need a big ticket item like a carb and a distributor, and the extra labor to set them up. it never hurts to ask.
dsraven