Yes, a Holley 1920 or Carter BBS carb intended for a 225 will work just fine on the 170 (…is part of the reason why I pointed you at the particular, specific carb I pointed you at). The factory started using the larger ("225-sized") carb on the 170 in 1967, which raised the 170's published horsepower from 101 to 115.
OK, if the engine temp gauge works correctly but the fuel gauge doesn't, that's probably a faulty sender or sunk sender float, but could also just be a rusted sender ground clip—that's a metal strap that bridges from the sender outlet pipe to the metal fuel line running to the front of the car; the system's supposed to ground through the fuel line-to-body attachment, but sounds like your car is very rusty underneath so there may not be an adequate ground. You may need to make and attach a new ground wire to the sender plate and run the other end of the wire to a good ground. Repair parts, see here.
That is very good news; the '60-'61 tanks are nigh on impossible to find.