Heads are worth it and with a set you should be able to pick up 20-50 wheel. Ported heads will range in price from $1300 to $2600. At this power level you will also need new injectors and a fuel pump. If you have not upgraded your oil pump or timming chain I would make sure it's done at this point. I'm sure you can start to see how the cost of things are starting to add up quickly.
I daily drove my car with the MS3 for awhile. It might be to much for sum but, I loved it. It won't be until the fall/winter until I upgrade the heads.
Here is the thing with your budget 400rwhp is easy. If you want to make another 50 wheel NA plan on spending another $2-3K
stage 2.5 5.3 heads are a waste. If you are going to get heads spend the money and buy trickflows or ETPs or you can but my ported ls6 heads when I upgrade ported L92s are a good head for the money and with the right combination can make over 500rwhp NA.
You don't need an iron block just get a ls3 block. I hate all the new parts that keep coming out because you and I are now both in the same situation we have to rebuy/upgrade aftermarket parts to make more power.
I think his issue might be more related to his stock converter.
This weekend there was a cam only f-body that made like 330 rwhp because the convert could not hold the power.