Help Please

You're better off doing a leakdown test. It will tell you more about the health of the engine than the compression test. If you're lucky its just leaky valve seals causing the blue smoke.

Use the skinniest head gasket you can find, which might be the stock replacement. Mr Gasket and mopar sell some skinny ones. Like .028 compressed.

You want to be very conservative with cam choice on a stock bottom end. Very. There is a lot of power to be gotten, but if you go too big you wont' make any power off idle and won't be able to turn the motor high enough to take advantage of any improvement. I'd recommend one of the very small Comp XE grinds.

Looks like stock manifolds in the pics? Definitely needs headers.

Torque converter is probably the best bang for buck acceleration upgrade.