The LS swap would be a nice swap, especially if using the EFI. But, that would require having to adapt it over to EFI, and it might not be all that hard to do, it would be extra $.
I have a th350 behind my 350, and I have no problems with it. The 4th gear would be nice, especially if running low gears(3.73/4.11), but if you have anything taller, the extra effort and $ to install the 700r4, but be hard to justify. I am getting around 18+ mpg with the setup I currently have. It's just a stock crate 350, with a stock th350. It's not a crazy power house, but doesn't ever lack on power though. It was a very nice upgrade from the I6 250 and 3 on the tree that the truck originally came with though.
I'm no expert, or as knowledgeable as a lot of the guys on here. That's just my own experience.