This question has been asked here a lot so you could search previous discussions and look over them as well. The short answer is: "Yes, it will fit". The long answer is: "It's going to take some work - quite a bit of it too". That is if you plan to do it right in the first place. Finding the mounts and getting the engine in is only a small part of the battle. Everything in the engine compartment is tight with a small block, tighter still with a taller deck Windsor. Headers are another issue you'll have to work through. I'm not sure if the small block headers will fit due to the higher deck/ports so custom ones might be the better way to go.
Now that you've got the engine in you'll also have to deal with suspension upgrades. You need to get the I6 stuff outta there and use all V8 suspension, braking system, springs and I believe steering components (I could be wrong on that part). Something else that you'll need to change out is the fuel line and some tank modifications. The tiny fuel line that served duty on the 6 isn't going to cut it on a 351W, expecially if you plan to hop it up. Even if you were to leave it stock I seriously doubt it will keep up. That means everything from the internal pick-up to the carb needs to be larger. I went with 3/8" aluminum line all the way.
Now to your question on rearend choices. It depends on how far you plan to go but the 8.8's have been known to take on all sorts of power. If you can get one for less than a good 9-inch that would work fine and you might end up with rear disc brakes if you start with one from an Explorer or other 4 wheel disc donor vehicle. Make sure you find one with the correct width or you'll be adding rearend narrowing and new axles to your budget. If you plan on making bigger power I'd suggest a 9-inch. They're out there and you can also buy new housings from places like Currie or Strange.
I went down this same road several years ago and like some people ended up selling the I6 car for the original V8 ride that I have now. It's just a LOT of work swapping out what ends up being the entire driveline, front to rear and mostly everything in between that's related in one way or another. In the end I've now changed almost everything except the mounts, etc. but it made it much easier in the beginning if that makes sense?
I can't answer your question about the T-5 but I've seen just about every transmission out there in them. I just don't know how much work it was. I stayed with my C4 but I like automatics if they're built right. With a floor mounted ratchet shifter, internal hop-ups and the right valve body, etc. it shifts just about as fast as I can bang the shifter handle.
You have a lot of work ahead but it's all do-able and the parts and assistance are out there waiting. Have fun!
John