Which transmission should i use?

Run the 904, a better fit and will handle all the power a 318 can make. I've been using the 904 for 20+ years. The only problem I've really encountered is the "cheaper" made converters will crack the converter neck @ the driving lugs. There are many quality makes now a days...spend the right amount in the first place, this will "save" you $$$ in the long run. A 9" or 10" converter with 3500 advertised stall will be a good place to start unless you intend on running a 2.76 gear. Also make sure you have a good trans cooler in front of the rad. this will help.
A couple of suggestions:
1. A manual shift valve body [which will eliminate the need for kick down linkage] which is essential for an "automatic shifting valve body"
2. A deep pan for extra cooling capacity
3. An aftermarket flex plate.