Get rid of the 2.3 as quickly as you can. I have years of experience with 2.3T's (Merkur owner twice over) and they are just a pain. It seems like you can replace every single part and it still won't run right. Not only that, but they have the powerband of a diesel engine and sound like a forklift. If I were you, I'd try to get an SHO V6. They are cheap and can easily be made to run longitudinally and can handle a lot of power if you decide to turbocharge.
I hate this. My Mustang (whom was unlucky to have a 200 6cyl replace the typical 289) behaves the same way - no power, no power, no power, no power, no power, POWER, POWER, POWER, no power, no power, no power...
shift! But its not as bad as my mom's Explorer - accelerator lags like a mofo, so a simple turn requires you to be on the throttle 2-3 seconds
before you normally would.
Anyways: A friend of my has a '86 Mustang with the same engine, but with a 5 speed instead. We did a drag on an abandoned strip against my '98 S10 2.2L (automatic) and I just barely beat him. Not bad for a 26 year old POS (mine isn't much better).
Here's my recommendations:
If you're keeping the 2.3 - like everyone else- I'd recommend a low pressure turbo (if possible). If you want a racey, 200-300hp engine, get a larger (?) turbo and performance engine parts - ie: high-compression pistons, rods, heads, and stronger crankshaft to handle the higher compression. New intake, carburetor, and filter followed by headers and nice flowing exhaust (assuming you're fine with the annoying sound of a 4 banger) and you should have a decent motor. I'd imagine a flappy-paddle transmission is not possible without dumping tens of thousands of dollars into it - though sequential transmissions are probably possible, though rather pointless unless you're racing. A suspension upgrade is a must if you want a bit of a stiffer ride or are racing. A new differential is probably needed too to handle the power effectively.
If you're going to swap it out...have a deep pocket. Famous quote "speed costs, how fast do you want to go?":
Me being the Ferrari nut I am, I say find a small V12 and fabricate motor mounts and such to make it fit. Aside from that, if you're a bit experienced, swap whatever you want - with the most recent 5.0's probably being the best for fuel injection and 351's or 427's for carbureted engines (power wise). Of course, I can offer my 200 6cyl and you could go about buying some high-performance bits for it - as so I've heard from someone here...
It's easy to dream what you want - it's just the matter of having the money to do it. ATM, I'm in the process myself of swapping a 289 back into my Mustang with a few performance bits added.
*Note: Not experienced on forced induction or making a performance engine.