I think the cost of custom pistons would push me toward the 7.3. I sleved one cylinder on my S-1600 due to what looked like injector failure damage.
Just do like I did and pick out a new looking 7.3 block and go with it. I think you will be able to tell if the cooling system was over looked and the block is suspect. IMO the ideal block would be from a low mile pickup. I like the 7.3 mostly for the IDIT rods, better heads/bolts, better IDIT head gaskets and a bit more low end. I say this forgetting that you pretty much need the pistons to lower compression.
My number one concern (after wrist pins) would be the rods.
As for the HX 35/40 hybrid I would recommend it for this application to about 350hp with I/C. Some people do not like the hybrid due to its small shaft but I believe those people are using it as a single at like 450+ hp.
If you want to get exotic you can go Schwitzer S-300 62/12 maybe 62/14 either should be good to 400hp with I/C. Or stage a hy-35/9 with a Schwitzer 66/14. Or best yet a pair of HX-30 turbos on your custom headers.
Any way you go id suggest a quality external waste gate.
Here is a picture of the HY on my MD truck next to a S300 62/12 next to a Schwitzer K-31 71/16
http://viewmorepics.myspace.com/ind...dID=59960303&albumID=2529058&imageID=41078291