I once had a '92 k1500. A compound turbo 4bt cummins with nv4500 found it's way under the hood. Stock transfer case and 10 bolt axle. It put 496hp to the wheels. I towed with it, and regularly beat it. The weak spot was found one day as the boost gauge rounded 80lb, I split the engine block from front to back.
In the 1500, I don't recommend going over 350hp when diesel powered. The frame gets flexy at power and windshields aren't flexy. At 350hp it won't be flexing enough to break windshields. There is MANY engines that can be used. Take your pick. Don't use the 4l60 transmission though.