There are many misconceptions about the 6.2/6.5 engines. Are they power houses...No, are they an industrial diesel like a Cummins....No Do they get fantastic fuel economy....Yes, do they make enough power for a K5...Yes (much better with a Turbo)...Diesels in general are more expensive to repair than gas, however, long term you do recoup that upfront expense because repair intervals are farther apart. A 6.2/6.5 will be a fairly easy swap as it will bolt directly to your existing transmission with no modifications, it uses the same motor mounts as well.
They can be built to be rock solid, but it costs $$$. If you want a 6.2 you need to look for a high nickel red block which as I recall was late 81 early 82 production. If I were you I would look at a 91-94 (pre electronic injection pump) 6.5 and do a turbo. If your k5 has a/c then a 6.5 turbo out of a truck will not fit without airbox modification, if its a non a/c truck it will fit no problem. As far as cali smog, its no prob. You go down to a referee station, get it stamped as a diesel and never worry about smog again, although cali will raise your reg. cost because its a diesel....gol figure that one out!!! when I did mine it wasn't excessive. If you want a powerhouse diesel, then Cummins is the only way to go, while you can make the 6.2/6.5 have power, it would cost more than throwing in a 12v and modifying the injector pump.