The DSII will drop in to a '66 block. The "Better check" year is '64. Prior to '64 the blocks have a smaller hole and drive shaft. It changed during the '64 year.
From David's post in this thread:
http://fordsix.com/forum/viewtopic.php?t=19384
Sounds like if your block is a '65 that a DS2 (Duraspark II) distributor should be a drop in for you.
I read that in your first post you are running webers, so if you're using the original 'load-a-matic' dizzy it won't be compatible. The load-a dizzy was matched to the original Autolite carb as it had a unique vacuum source for the dizzy (read the sticky).
If your dizzy is hooked to ported or manifold vacuum, it won't work properly... that's probably where your problem is stemming from...
You can get a DS2 from your local auto parts store (tell them it's for a '78 Fairmont 200, with the single port vacuum advance). I'm not sure how much this would be, probably $60-80. Then you have the option of triggering it with the DS box, or a GM module... the GM module is a little easier as far as wiring goes...
Here's the FSP page that has the GM module diagram (the other pics are currently missing)...
http://www.fordsix.com/duraspark.htm
Here's an alternate page with the stock Duraspark module wiring:
http://www.mustangsteve.com/conversion.html
If you go with the DS module, get the one with the 'blue strain relief'...
You could also get a dizzy out of a junkyard, probably for around $20 or less... but I would still get a new module... I wouldn't trust a junkyard mod... there's not much to break in the dizzy... all 3 I've pulled out the j/y have been good...
Hope this helps, it's a lot cheaper solution than $490!