The TH350 isn't a bad trans. It's not as strong as the TH400, but eats less power doing its job. You can also get a wide variety of torque converters and shift kits for it.

I've beat the living heck out of a TH350 without failure, but wouldn't select it for drag racing. I have a TH400 in my 'bird, but don't use it to its full capacity.

You can save your money and freshen up your TH350, then spend the savings on gas.

Since you're running a fairly stock setup, you can run the 2.78 for economy. However, the 400 is not an economy engine. Over the course of two seasons I've averaged 11 mpg with 2.73 gears. You can get a little more performance with the 3.23 and lose a little economy.