Better mileage
Even though this post is a few years old, I am going to reply to it, as I know other people will have the same question as the original poster did.
You could change the rear end gears, but if you go less than the stock 3:55 gears, you will lose the limited slip. I don't believe the more economical truck gear ratios available with this axle offered limited slip differential. You can add a Gear Vendor's overdrive to your 727, but you are looking at a $3000 investment, which is relatively easy to add after you shorten the drive shaft. Another idea would be to add a 90s O/D automatic transmission as used in 90s Dodge truck Magnum engines, but you may have to make the trans tunnel bigger to get it to fit. You could swap in a modern 5.7L or 6.1L Hemi with VVT and O/D transmission too. Again trans tunnel mods may be necessary.
You might keep the piston compression ratio down in the new engine too. Stock was about 8.3:1 if memory serves. You could put in cheap or cheaper gas in it that way too.
Note that the 727 used in a LRE was not a stock truck 727. It had a 2300-2500 stall converter and used the same valve body that was used behind 440 engines. They shifted hard under full throttle acceleration. The truck would throw or push you back in the seat. You would probably lose that fun factor by switching to a different transmission.
I am restoring a 78 LRE and am planning on adding a Holley ****** fuel injection system for about $1300 for the whole kit with electric fuel pump and filters. Since I won't be spending $300 or more on a new Edelbrock carb or similar, I look at the ****** as costing me about $1000, because I would be spending a minimum of $300 any way to get the fuel to the motor. I thought I would go that route rather than replace the stock sending unit with an in-tank pump so the stock gas gauge would register and work properly. This probably won't help the gas mileage a lot, but it will make it run more efficiently like a modern car. I am adding long tube headers too and running a reproduction 2 1/2" exhaust system the rest of the way back through a pair of ****** Max Flow mufflers.
I am not restoring my LRE truck because it gets good mileage. And I am not going to drive it every day either! I am restoring it because it looks tough and is a fast little truck IMO. It's for fun and to gearhead in. So gas mileage is secondary. Got to keep your priorities straight I guess! LOL
The engineers who designed the mechanical aspects of the Lil Red Express package included Tom Hoover-the godfather of the Hemi (426). His team was trying to make a fast hotrod truck, not a gas miser. They did a great job achieving that given the many restrictions they had to work around with emerging EPA emissions regulations and a limited design budget. There were a lot of other vans, cars and trucks that were more economical in 1978-79.
They put a lot of simple hot rodder tricks into the mechanical package of the LRE. It wasn't about one or two hop ups like Ford and GM seemed to do. It was a complete package of upgrades from a standard 360 that worked together to make more power. Ram Air, stiffer valve springs, hot cam, bigger carb that dumped in 800+ cfm of air and gas, forged crank, big dual exhaust system with low restriction exhaust manifolds, high stall torque converter and bigger valve body, limited slip axle with a good street/strip gear, big wheels and staggered tire sizes. Lots of stuff going on here. It was a system that worked well together.
Also remember this is a vehicle that captures a lot of air under it when it's going down the road. It's as aerodynamic as a brick. Modern trucks have the same problem, though with 40 years of new auto technology, they are more economical. It's simple physics you are trying to defeat.
I'm a purist in many respects. Don't ruin your LRE truck by sticking in a diesel. A few people have done that, but to me it's sacrilegious as the Lil Red was born a gas powered vehicle. If you can't afford the gas, drive it less or do one of the things I suggested above. Cheers and good luck to anyone else pondering this same issue on a vintage Dodge car or truck. Mopar to ya!