As far as altering an EGR system to add air and lean out the mixture, that looks to me like a real clunky way to try to meter air. There was a device marketed to Mercury outboard racers forty-five years ago that attempted the same thing, with a reed-valve over an air hole, fitted right above the intake ports. The idea was to richen the carburetor to compensate, but while you might get lucky and get a useable mixture at some particular rpm, outside of that band the engine would go either rich or lean. The few guys who tried it seized a lot of pistons. The fast guys used bigger, or more, carburetors to accomplish the same thing. Of course, you're after economy rather than power, but it seems to me there are more precise methods of getting there.
What year is your 400M, Mike? "Hot Rod" did an article three or four years ago in which they got over 400hp and enormous torque out of a smogger 400M without spending much. It might have some useful info even if you don't need 400hp. That engine always looked on paper like an ideal truck/van motor, with 15% less displacement than a 460, but a longer stroke. It wouldn't rev with a 460, but so what? Stubby mentioned that the smog motors had the cam timing retarded, 8 degrees on my 460. I made a new keyway in the sprocket to get "straight up" timing, but maybe a zero-retard sprocket is available. That gets you some low-end torque, therefore a lower throttle setting, etc., etc.. A fresh valve job never hurts, either, esp. since you can grind the unwanted lumps out of the ports at the same time. If a 400M head is like a 460 head, it has big, ugly obstructive lumps in the middle of the exhaust ports for the air injection; grind 'em flat.
My dream truck engine (someday, if I can ever wear out the 460) is a 400M with Aussie closed-chamber heads, the block decked to .040" squish, 9.5:1 compression, water injection, aaannnndd . . . laptop-programmable fuel injection with all of the feedback sensors, which is surely the ultimate in mixture control throughout the whole rpm range. I think once I had built that, I'd start WANTING sky-high gas prices, just so I could brag about my gas mileage!!