Is this engine builder nuts?

The good thing about the lower HP is that the stock 318 rods will live all OK.

FWIW.... I'd start with a simple, solid lower end rebuild with:
- New bearings, cam bearings, intermediate shaft bushing, perhaps new intermediate shaft, basic timing chain & gear set with +4/-4/0 degree setting, oil pump, oil and core plugs, gaskets and decent pistons/rings. I'd get a stock Pioneer damper if the rubber is bad/old/cracked a lot on yours.
- For a budget street build, ideally stick with pistons that are close to stock weights so you don't have to rebalance and with a decent compression height to bring them up closer to the deck for some CR. The problem is finding inexpensive 318 pistons that are near the stock 592 gr weight AND has good compression height. Some options to consider:
> The KB167's get the pistons well up into the hole, but a roughly computed bobweight is 2035 gr vs 2150 gr stock. At least, for a balance job, weight will be removed, not added, so that keeps balancing cost down. Static CR will be in the low 9's range with an .053" thick head gasket and no head shaving and closed chamber heads.
> The Speed Pro's are down in the hole like the stock pistons, but have closer weight to stock. So with those, you would have shave stock closed chamber heads around .030" or to go with magnum heads to get the CR up into the mid 8 range.
> Similar for the TRW L2329F's: a bit better CR than the Speed Pro's, and weight is supposed to be very close to stock, so (probably) no rebalancing is needed. Static CR will end up in the mid 8's range with no head shaving and a .028" head gasket and closed chamber heads. This my be the best low budget combo, IF you can get the TRW pistons. (I see one set for sale on ebay right now.)

BTW, just a side comment for the machine work: Any machinist will make more dough by doing more for you, not less. So examine any suggestions like porting the 273 heads with that in the back of your mind.