Advice on small block (and transmission) shopping?

Here is the short answer:

Keep the 904 and rebuild it. Can be worth 1-3 tenths in the 1/4 mile (depending on who you talk to).
Get a mild 360 and rebuild it, or put a 4 inch crank in your 318.
Ditch the 7.25 rear and upgrade to something else (8 3/4, dana, 9 inch, etc)....for what its worth, my best friend broke a 7.25 rear with a nearly stock rebuilt 318 on the first trip out of the driveway.