A 4speed auto would have even lower first gear however depending on the rear gear it may not work to well.

For a 326 it will respond to upgrade like any motor. Maybe not 350hp but there are mods you can do.

What I would do is this:
Voodoo cam 213/219
self port the heads (Widen the pushrod bulge, 80% open the throat, widen the short turn)
Port match stock 4lbb intake
headers or Long branch manifolds and dual