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I was looking over the car today, I brought a nice earth magnet with me to inspect the body a little better and it made me a little sad inside. At a close look at has a bit of bondo in it, and also a little rust around the fender wells, nothing major but the bondo deal could be a deal breaker on me restoring it to stock or putting in a V8 or another engine. To find body panels to weld back in to replace the panels where the bondo is....well I can't find them at all. So, if I can't find them I will be stripping it and doing the bondo again but better than it is done now and then putting in either an LS1, 5.0, or another RWD turbo import engine that won't be a major ordeal. I have seen a bunch with Supra engines in them, but that engine is 5K easy and that is just out of my price range. It does come stock with 320hp, but I could build a 302 with 350hp for less than 1,500 total and it would get around 22 mpg and be reliable. I really won't know for sure until I actually strip the thing down to bare metal though. I really want to get started on this thing but my hands are tied until we move, hell I would be happy to have it at my house so I could just start cleaning everything and prepping it. I just love the interior so much, even the seats are more like racing seats than regular buckets, so nice for its day and time inside.
Do a V8 swap or build the B21, you would end up spending twice as much money finding a Supra engine or something else to fit in there.
I still think you should stick with the stock engine, ditch the k-jet mechanical fuel injection for EFI, stick a big turbo on it, 3" exhaust, big injectors, etc. and run 20 psi reliably.