I don't know if it is right or not, but I have a 14 SF rear in mine and was all ready to replace the U-Joints to get rid of the clunk from reverse to drive. Then I started checking to see if one end was worse than the other, turned out both were nice and tight, no play. Did more looking on this site and others and found that the 14 bolt with a locker can produce quite a bit of slop without it really being a problem, so I'm learning to live with it.
On a side note, you said you have a small block 400 with a Turbo 350 trans. Are you sure? The factory application would have been a Turbo 400 three speed auto from what I can tell, and I don't know why anyone would swap a TH400 for a TH350, given the amount of things that would have to change with it and the fact that you would be dropping down in strength.
If it's the case that you have a TH400, going to a 700-R4 would be a fair amount of work, NOT a direct swap. First of all, your transfer case would have different number of input splines that would not match the 700, and I believe the length is quite a bit different, meaning both driveshafts would need to change and your existing crossmember would need to move or possibly be replaced. Add on the TV brackets you would need and I think you would have more money in the install and modifications than you do in the transmission itself.
A 4L80 would be a closer swap as far as input splines and match the strength rating, but would also move the crossmember and change driveshafts, I believe. Either would be a lot of work for an eventual MPG gain that might or might not show up.
If I were you, I'd start with a good Sea Foam treatment in the fuel system and directly to the intake (you can watch videos on YouTube, there especially a good one from Project Farm on Sea Foam treatments on a lawnmower engine). Do a tune up with plugs, wires, etc., and consider an electric fan if you want to improve the fuel consumption. I'd also warn against using the fuel gauge to determine MPG's, they are not linear at all, and should be considered a fuel "Indicator" instead of a "gauge"...