998/999 have a lower 1st gear. and if you can rebuild an engine you can do a trans.
it will be sooner than you think! bank on that.
i'd probably go with the 360 heads in that they're likely to have larger valves and flow better than whatever 318 heads you have. unless the 318 heads are minty and don't need work. but, yes, port away. (more on heads later)
machine work has become very expensive. finding a competent machine shop these days is also difficult.
where are you in CA? there are TONS of magnums in the yards and on c'list, etc.
okay, all that aside, here's what i would suggest. rebuild the bottom end with good slugs and aim for 9.5:1 compression. then, spend your money on heads. you *could* go magnum, that's probably the cheapest bang for the buck, but will require custom pushrods and hustling up all the bits and bobs. maybe you score a deal on some big valve 360 heads that don't need a billion dollars worth of work or somebody is unloading a set that got breathed on because they upgraded to something else. used alum. edelbrock heads show up in the classifieds here from time to time.
legit, you're probably going to spend 1/3 of your budget on heads.
so you've got 500 in pistons, 300 in rings & bearings, 200 in gaskets. then tack on 500 for cam, lifters, timing chain, pushrods. throw around another let's say 300 in misc argle-bargle of oil pump and pick up, maybe the correct oil pan, fuel pump, etc.
so you're 1800 into the bottom end, another 1K uptown, and you've got 200 to figure out: intake, carb, spark, ticky-tacky stuff like valve covers, air cleaner, oil filter adapter, thermostat and housing, pulleys, etc, etc, etc.
if you're working within such a tight budget, remember that everything is a compromise. decide where that compromise is going to happen.
also, keep in mind that besides the transmission you'll likely need to upgrade the cooling system at a minimum, figure out motor mounts, exhaust, minor electrical, as well as brakes and suspension