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ME personally I would definitely do a 4.8 newer engine, the gen IV's have DOD. I mean if a new vette can get 30 mpg and have the ponies then you should definitely be close with a smaller v.8 in an s10. you could find the 5.3 aluminum block and use the 4.8 internals. dont think they made a 4.8 aluminum. one of my projects has the 98 ls1 and 6 speed. I have also had a 350 version and will say the drivability and the mpg increase of the newer engine is definitely worth it.
4.8's can usually be had for cheap since most replace them with bigger engines. Not sure about 30 dollars cheap....
I also rented a full size chevy van recently and it had the 4.8 with 6 speed trans and amazingly for a brick on wheels got decent mileage be awesome in an s10.
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