Working from the bottom of your post, up.
The carb issue is one where I have some differnt opinions to others.
Firstly the later Falcon style 2 barrel progressive is OK, but it ideally should be mounted perpendicular to the head with the secondary barrel outwards, if you get my meaning. Makes for either an adaptor with greatly compromised airflow, or a lot of brazing and grinding...
2-barrel synchronous carbs may be aligned with the head, but fuel starvation as the vehicle corners, may be noted. Also, fuel distribution may be unequal and slightly lean in #2 and #5. The GM style X-2 setup is better, but again you have to braze plates on.
If you go too big on a single barrel carb like a Stromberg BXZ, it will probably atomise poorly at lower airflow demands.
Jumping to the ignition: Your original distributor is only matched to the original style carb. It has no mechanical advance. When you change the engine's nature, you risk losing a good chunk of its functionality by altering the vacum signal it receives.
However, this original dizzy has a 0.490" shaft, whereas later ones (XR-XB) have a 0.530" shaft. Around the XE, they went back to small again. With some minor reworking, the later unit will physically fit - the block bushing or shaft change is only required on engines with the larger hole. However, assume any 20+ year old ignition system could do with a decent re-curve.
The oil pump is driven from the bottom of your distributor shaft and on the present setup uses a hex shaft around 7/32". In the later sixties, that enlarged to 5/16" and this is why you'll need to change your oil pump - to work with the later ignition unit. Chances are you may need to grind a little off the shaft length as they're normally supplied for the physically taller blocks.
We have seen a good few problems in recent times with cam billet quality. For a moderate grind, reusing the original cam is a better policy and may (check with the grinders) mean you can keep the original distributor gear instead of going to the hardened one sold by Crow. You might try Watson or the mob up in the Hunter area (forgotten their name in a senior moment)for a regrind. Lifters can probably be linished - see what they say.
Before doing anything to the head, work out which one it is. An XT head is often better (slightly bigger valves and larger intake area), if you can source it. XW-onwards had larger chambers so you'll lose compression unless you munch lots off the gasket face.
The 170 block is a sort of revised, maxed out 144 and you can bore to about 60 thou, and probably add 50 thou to the stroke (but that would never be cost-effective). Depending on how far it's been bored previously, you may be at the end with it. Notes elsewhere in the Forum about gasket types, deck height and compression ratio, all apply equally to your situation.
I'm surprised at that mileage coming with an auto; in many ways that suggest an engine/tranny in optimum condition and I might be playing with a completely different motor and box rather than messing up what I had there.
With the rear gearset - 3.2 is a sought-after combination, but to install the gears you must set the preload and backlash. Including new carrier and pinion bearings, this could be between $250 and $450, probably on the lighter side of that unless the wheel bearings are shot too. A diff from a US Mustang with 2.92 or so ratio, will fit but you may have to deal with Australian Mustang enthusiasts (a special bunch
)
Tyres are something where a fairly narrow tread will see you better off. 195 is plenty on this car, and the outer diameter is certainly a means to fine-tune the fuel economy.
Cheers, Adam.
