Don't be so afraid of a Diesel swap
But instead of the problematic Olds 350 Diesel I'd tell you to get a Cummins 4BT or an Isuzu 4BD1-T.
I'm also not so favorable for such a high rear-end, maybe getting a lower one and either bolting an aftermarket overdrive unit (such as a Gear Vendors) or getting another transmission with a higher ratio for the final drive would help you to improve the inner-city mileage without harming the highway cruising
