Water Gushing Out of Bell Housing

In preparation for launching our 86 Martinique this weekend here in Northeast Georgia, we ran the engine in the driveway with the Timmy T (thanks for the great build info!). After running it for a good bit while we were adjusting the dwell, a gushing leak began around the bellhousing between the engine and the transmission. From my research here on CCF, as well as a few other 351W enthusiast forums, I've surmised that water has corroded through the end of the block from the water jacket into the bellhousing. Thankfully, this happened in the middle of the driveway and not the middle of the lake! It was a ton of water gushing out into the bilge.

1) Is there anywhere else that water could be entering the bellhousing? It is definitely not a redirected small leak from somewhere else. It surges with the RPMs of the engine based on the throttle--small trickle at idle, increasingly gushing under higher RPMS.

2) I read on another forum that someone had drilled out the hole in their water jacket, tapped said hole, and then put in a bronze plug. Anybody have experience with this and want to talk us out of trying it?  My Dad is a large factory equipment repairman, so we're not afraid of doing some fabrication work if it might solve our problem. 

We've mostly resigned ourselves to buying a remanufactured 351W Marine reverse rotation long block and dropping it in ourselves. Unfortunately, they seem to be in short supply these days. We have calls and emails out to several places (Rapido Marine, Atlantic Marine, MABBCO, Carolina Marine Engines), but Summit and JEGS both said their suppliers are currently out of stock and have no idea when they will have new stock.  We're not afraid of just buying a short block and reusing our existing reverse rotation parts (Dad has rebuilt two 351Ws in the past), but we can't even find one of those at this point. 

1) If you were going to mostly build a new 351W engine from the block up, what would you say are worthwhile upgrades/customizations? This is the moment to make changes, so I'd appreciate any input you have. Atlantic Marine will do a GT40 head upgrade for $400. Worth it? Assuming we might need a different prop to handle the extra power. We're not footers, so we might not even need the higher performance. Most of the shops either sell a black or a crusader blue block. Still trying to decide what would look better. We could always repaint with silver once we receive the block as well.

Thanks for any help or advice you may have to offer! 

P.S.: Here's a pic of our Martinique after we cleaned, brightened, sanded, and sealed all of our teak. Lots of elbow grease, but totally worth it in the end!