You pegged it right on the head. I have an 87 k5 blazer with a fresh rebuild and 4.56 gears and a 700r4. The only way I make it up is his is with the transmission in second and the pedel floored. I can tow my boat at 45 max up the hill.
I've recently put headers and a new chip from Brian on my blazer I'm hoping to at least be able to hit 3rd and do 50 up the hill but I doubt it.
Anyone wanting to rebuild one of these motors and use it as a tow vehicle is wasting there money. If I had to do it again I'd go with a nice newer 6L out of a wrecking yard. I wish someone would have told me this before I invested money into mine. I'm now contemplating nitrous or a used blower seriously LOL!
I was close to puting some vortec heads, cam and getting a chip done to this. I'm pretty glad I changed my mind. This is a long term vehicle for this family so I'd rather just toss the cash at it now and be done with it.
I've been down the road of trying to do it cheaply and end up with something you weren't happy with. Screw that, I'm going for it with this one.

). Even on the Nebraska flats I was able to keep 65mph in a headwind and 7-8 mpg.
I have everything you were gonna do done to mine LOL