The 360 heads will lower your compression down into the 7s because those heads have bigger chambers than the 318 heads.
You cannot make up 2 compression points with a .040" cut. Ain't happenin. About .0067" equals 1cc on a 340/360 head. About 6ccs equals one compression point. So that means you will have about an .080" cut on the heads to equal two compression points. So all that work on the 360 heads is really useless, IMO, because a machine shop will charge a pretty penny for a cut that big, since most shops will have to make multiple cuts.
Don't forget then you will also need to cut the intake a similar massive amount to match the heads, so even more money there.
IMO the best thing to do is stick with the 318 heads. Do a mild build on the engine. Use the thin head gaskets from Mr Gasket. I think they are like .025".
Pick out a cam on a wide center line around 112 to 114 and no more than 220 @ .050 duration and you should have a really peppy little 318.
Or, you can spend a pile of cash milling metal off.
