how much hp will a 8.8 hold?
Also, keep in mind that Gen I Lightnings came stock with 8.8s with Posi-Trac and 4.10s. Those trucks also had a pretty stout factory shift kit. I have seen Turbo Gen Is with 450+ RWHP on the dyno with a full factory driveline (although that might be pushing it). My friend has a stock '93 he bought NEW. It has 157,000 miles on it, and he has had zero issues, and he drives it HARD...EVERY DAY. These trucks had 240hp & 330 ft/lbs, but Ford neglected to tell people that was measured at the tires, not the flywheel. So figure they are probably about 300hp at the crank.
Bottom line, the 8.8 can take 350hp EASY, but the 8.25 will too, and it'll be cheaper for you to do .