When you start talking about head work, generally you are talking about getting a rebuild, which is about $200-300 depending on where you live. If you engine has been rebuilt in the last 10 years, chances are that it already has hardened seat valve. I personally wouldn't worry about that first. Do it later. With $1000-$1500 bucks, here is what I'd do:
1) Pertronix ignition and flamethrower coil: $140
2) a) Holley 2V carb: $50 (from ebay or the such) + $50 adaptor
or
b)Pony Carbs rebuild 1100 (they rebuild them and remove some of the problems): $190 I'm currently running aPony Carbs rebuilt 1100. Rans beautifully. no flat spots, no hesitation...great investment.
3) Exhaust Port Divider : $20, plus some real high temp epoxy (not JB Weld or other Autozone type epoxy, real 2000* epoxy :
www.cotronics.com stuff)
4) Headers and exhaust work: $300-800. This really varies depending oh how much you get. Standards headers are around $250. If you want dual exhaust, about $300 for the system, plus about $100 for connection the headers to the dual exhaust (they don't make dual exhaust specifically for 6 cylinder mustangs). Or you can go with single out or Y pipe 6-2 headers and just connect that to your existing single exhaust system.
5) Now you have a solid running, peppier car. Depending on what you did with the exhaust, you may have around $500-$800 left. If you have a manual tranny, consider a T-5 transmission swap. I got my T5 for $250, $200 for adaptor kit, $150 for miscellanous parts, and $100 for drive shaft modifications. The T5 will really wake up the car. If you have an Automatic, you can still do a T5 swap, it's just more involved.
6) Another fairly cheap, though more work intensive way to get some more power, new Cam. it can be done with the engine in the car, though it does involve removing some of the front of the car. Typical new cam kit (with springs, lifters, etc) goes for around $200 and will also help your car gain some umph.
That's basically what I did with my car in the first yet, and I'll tell you something, the car is much more alive then it used to be. Mainly from the combination of the cam and T5 tranny. The pertronix was the first mod I did and the one I'm still the most happy with. Really smooths the car out and actually gets better mileage.
Basically, my list goes from simplist to hardest
Slade
Take off the distributer cap, pull the end of the rubber hose that connnects the dist. to the carb , off the carb. Then suck on the hose and observe the open dist. If your just sucking air and the mechanism in the dist is not moving (advancing). You will need to pick-up a new vacum control. That is the little canister connected to the distributer. $10 for mine @ local auto parts place. 
