To help with answers to the compression test, here is a portion of an article copied/pasted from http://www.mhnetwork.com/news/properly-diagnose-your-customer-s-engine-problems/
Now being in Hawaii I'm not sure what your available options are, but a good upgrade would be a 5.0 from an Explorer if you can get your hands on one. But be aware that they are most likely a different balance than the old 302 in the II. I don't know for fact that this is the case, but it stands to reason that they're a 50oz vs a 28oz engine, so in any case you'll need to take some stuff to a machine shop. If it were me, I'd try for the Explorer engine and rebalance the flex plate/flywheel and go from there. Also, if you're not aware, the later Explorers use a GT40P head which has a different spark plug angle than any other small Ford, so you have to watch out for that as well. Easy identification between the P heads and the earlier GT40 style heads used on earlier 5.0 Explorers is that the "P" heads have 4 bars cast into the end of the head whereas the earlier GT40 style heads have 3 bars cast. If you need more info on what to look for go to the Fox forums and do a search on Explorer head and engine swaps. It used to be (and probably still is?) a pretty popular option. While you may run into some of the same problems with an Explorer engine, almost everything in them is an upgrade over the old 70s iron....
- Readings from the wet test should not increase by more than 10 percent, cylinder to cylinder.
- If the compression increases with the wet test, the results identify the problem as the piston rings and/or cylinder walls. The theory behind this test is that the oil is providing a wet seal for the rings. If they are not sealing on their own they will when the oil creates a seal and an increase in compression will be observed.
- If the compression stays the same, the results point to the valve train. The theory is that when the rings are sealing, the oil will have no effect on compression and therefore the valves are most likely the cause of the problem.
Now being in Hawaii I'm not sure what your available options are, but a good upgrade would be a 5.0 from an Explorer if you can get your hands on one. But be aware that they are most likely a different balance than the old 302 in the II. I don't know for fact that this is the case, but it stands to reason that they're a 50oz vs a 28oz engine, so in any case you'll need to take some stuff to a machine shop. If it were me, I'd try for the Explorer engine and rebalance the flex plate/flywheel and go from there. Also, if you're not aware, the later Explorers use a GT40P head which has a different spark plug angle than any other small Ford, so you have to watch out for that as well. Easy identification between the P heads and the earlier GT40 style heads used on earlier 5.0 Explorers is that the "P" heads have 4 bars cast into the end of the head whereas the earlier GT40 style heads have 3 bars cast. If you need more info on what to look for go to the Fox forums and do a search on Explorer head and engine swaps. It used to be (and probably still is?) a pretty popular option. While you may run into some of the same problems with an Explorer engine, almost everything in them is an upgrade over the old 70s iron....