10mpg? if you manage that, please let me know. I'm a diesel mechanic working at the local bus company (krapf's bus company) and with the powerstrokes we usually get between 7-9 mpg depending on the run. our new thomas builts with the mercedes straight 6 diesel get about 6-7 so 10 isnt a big possibility, and with a 534 gas motor, i'd asssume about 3-4. for a bus, go diesel, you wont get better gas mileage with gas.

as for shaving the heads, that would bump up compression, and having the cam reground will change lift and duration, which both will end up most likely worsening the allready horrific gas mileage situation

i'd say put a used dt466 or t444e into it and call it a day (466 straigght 6 international turbo diesel, or 7.3l(444) international powerstroke turbo diesel)