I'd start off first with a good 2.5" exhaust system. A off-road H-pipe, and a nice cat-back. Headers too if you can swing the extra cash.
I would also throw in a set of 4.10 gears. The difference between 3.73's and 4.10's going down the road isn't that big (about 300-400 rpm) but the 4.10's will help that heavy vert get out of the hole.
I'd pick up a set of E7TE heads, intake, and TB off of a 87-93 5.0. You should be able to find these pretty cheap because people upgrade and basicly just junk this stuff, especailly intakes and TB's.
That should bring your hp up to about 235 or so. You'll actully have a little more than stock because the 86 has flat-top pistons that will raise the compression when E7 heads are used.
While you've got them off you might as well do some porting to the E7. It's not hard, you can do it yourself. I'm not talking about bowl work, etc. Just mildly port the intake and the exhaust (and get rid of that emmissions bump in the exhaust port). Gasket match the heads and intake to a Fel-Pro 1250 intake gasket and a 1415 exhaust gasket. For more head porting info check out
www.mustangcentral.net Mat Peirce has written a pretty good artical about porting stock heads.
Coupled with a suitable small cam, that should give you about 260 or so horsepower.
-Josh, aka the tireburner