It came with a C4 transmission, right? Is that what you meant by "C4 transfer"?

You noticed a size difference? Externally? A post '65 289 is identical externally to a 302, with the only differences being accessory drives and maybe dipstick locations. Did you mean you checked the stroke while you were removing the engine?

"The motor and transfer came out of a '74 Mustang..." A '74 Mustang is a Mustang II. They were not equipped with V8s. The 302 was available in 1975. If a 289 came out of a Mustang II, regardless of year, it was a transplant. The last year for the 289 was 1968.

Your OEM "transfer". Are you now talking about the transfer case in your truck? If so, is it the type that bolts directly to the transmission? (referred to a "married") If so, it will not bolt to a car transmission. And the car transmission can not easily be converted to a 4x4 model, as a complete teardown and a replacement tailshaft and housing are required.

IF you have a 289, it would install exactly the same as a 302, as the blocks are the same--UNLESS it is an early '65 or older 289.

The transmission is a different issue.

Also, flywheel/flexplate balance changes in the early '80s, but we're not there yet.

Did you perhaps get a 2.8 V6 out of that '74 Mustang II, and that's the size difference you are noticing externally?