Horsepower is like that hot looking, busty gal in a bikini that we can't help but look at when she walks by. Torque is the fair looking girl with a nice smile and a good sense of humor that we take home to meet the parents.
Torque is where its happening. More torque at lower levels will make a car more enjoyable on the street. Torque production is also a better measure of efficiency than horsepower, IMO.
It also is fair to say that more cubic inches will always produce more torque or horsepower than less cubic inches. It also will produce that power at lower rpm levels with less effort. However, it also will require more fuel to feed those cubic inches. You can improve the efficiency of the larger displacement by squeezing the charge tighter or introducing better atomization of the charge so it burns the fuel more completely (thus needing less fuel for the same power). This is where the engine build gets tricky because there are multiple factors involved that can help or hurt you and it is never as simple as saying I want X compression producing Y power. It becomes a balancing act of compromises. Also keep in mind that 600 horses from 500 inches requires a whole different level of components than 600 horses from 360 cubic inches because of the rpm levels involved. That can become a huge factor in the cost to achieve the repsective power levels.
Additionally, when looking at the weight you're carrying and how it relates to the handling, with your mustang, you will have a greater range of spring options that can be used to offset the additional weight you would carry with a big block over the small block. You may wear out tires faster, but, that may actually equalize the overall wear of the fronts as they carry more weight to match the burnouts you'll produce with the rears as a result of massive torque under your foot.
One issue of concern with a mustang is that they do not fit big blocks very well. Sure, some were put there by the factory, but their sheer size means service can become more of an issue than an equivilent small block. Ford engine bays, and mustangs in particular, are unfortunatly small. In this regard, your 351 small block stroked to 427 would be an easy answer.
If you don't track the car regularly, I wouldn't get too hung up on racer based perfomance. Race cars are very tempermental, require lots of upkeep, and regular maintanance and need to be inspected regularly (remember the bikini girl above). A street car with lots of torque is more fun to drive within a moderate rpm range and it won't require as much meticulous maintanence procedures as often.
Enjoy what you have for a while before jumping into big future plans. You may be surprised by what your mustang has to offer you. Once you get to the point that you are bored with its power levels, then see where you want to go with it.
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