I say get the transmission rebuilt, and if itn where mine buy a 5.7 liter short block. Then get your current heads reworked and use those on top of the 5.7 block. If you have a 5.3L vortec, those heads flow the exact same as the stock ls1 5.7 heads even with the smaller valves but it bumps the compression up to about 10.8 to 1 because they have 61 CC combustion Chambers as opposed to the 67cc heads on the LS1 5.7. Those heads can be purchased already worked over for a song at a dance since they were put out by the tens of thousands. Probably just cheaper just behind the reworked heads or check into getting yours work and do whichever is the least expensive. Then put a mild camshaft in nothing ridiculous like a 212 / 224 duration cam no more than 450 lift. Don't go too high on the lift those heads aren't designed for it. Also put the supporting mods for the camshaft. Springs ( a must with a bigger camshaft ) and roller rockers if you can afford them but they aren't not needed. Summit makes a budget set that would be perfect for that mild engine. That 5.7 block with the vortec heads and will increase your torque/HP numbers rise substantially and make your driving experience much more enjoyable for that heavy truck.
When you take the valve covers off be sure that you have the little aluminum plate over the EGR vent located on the back of the drivers side valve cover. I think 2002's already had them but it's something you want to check. The early vortec engines had a problem with oil consumption because they did not have that little aluminum plate over the EGR vent and it tended to suck oil up into the engine. After a lot of associated complications they figured that out and put that little vent block plate on there.
The vortec heads that came out on the truck Vortec engines are some of the best flowing heads that GM has ever designed. Plus the smaller combustion Chambers offer a nice compression bump which is an excellent addition to a truck motor since torque is increased exponentially with the addition of that increased compression. Also use the thinner multi-layer steel gaskets ( Cometic) and not the cheap Fel-Pro gaskets. Those thinner multi-layer steel gaskets are also responsible for about a quarter point of compression as opposed to stock style head gaskets. Those multi-layer steel head gaskets come in three compressed thicknesses, you want the thinnest of the selection. You can almost get 11 to 1 compression out of that combination. Then just have a good tune on it. It will be a breeze to tune because that's a relatively mild motor and will be a very efficient and a well-mannered Street engine that will give you gobs of torque and a nice bump in horsepower due to the increase in cubic inches and compression.
In the LS1 community it is a well-known fact that the vortec heads are actually a upgrade to the stock LS1 head due to the compression increase. If you want to go a step further when you get the heads worked or refurbished have them install 202/160 size valves for added flow characteristics.
Those trucks will last a long time if you take care of them. I have a 2004 that only has 83,000 miles on it but it's still drives like a brand new one. I'm still running on the stock brakes but I could use a new pair of shocks, it is getting a little bouncy after a good size bump in the road.
If I was in your position that's exactly what I would do. Having those heads reworked would be minimal cost. And since the engine is out anyways a camshaft and new timing chain would be an excellent addition to the newly added 5.7 l block. 5.7 l short block can be bought for a very good price. And then a few hundred for the cam and springs and timing chain.
This might sound like a lot but it's really not somebody you know it can probably help you do that stuff and it's fairly easy. And can be done on a budget if you watch your p's and q's. You already have most of what you need. You just need a 5.7 l block and a camshaft package. Along with the horsepower and torque increase you'll get a bump RPM capability from the slightly larger camshaft. But I would never dog my engine like that anyway because all the torque is in the bottom end and that's what gives you that throw you back in the seat feeling. That's what I would do. If I still live there I would help you do the engine for nothing but the enjoyment of building the engine. I know those engines like the back of my hand and can work on them blindfolded. Oh! Don't forget a good cold air induction system.
