Hey, I have a 66 mustang w/ a 289, almost totally done now. I went with an aod transmission from an '84 t-bird. It turned out pretty decent, even though it hasn't been driven much since I've been doing the prepping for paint. Cost rounded out to about 500 bucks. 250 for trans, 125 for the xmember, 60 for the flywheel, and I really didn't have to replace the driveshaft but I did anyways...Another 400 bucks damage. Oh and the all important throttle valve cable and set up. I don't regret it at all. Last time I had it out on the street the difference was awesome.
Yes, they'll work. the biggest pain with the aod is setting up the t/v cable, they are all pretty much the same. but you need to buy the cable vs using the linkage that comes with some of them. Remember that you have to change the flywheel, and it has to have the right counter balance weight in it. So you can't use the one that came off of the latemodel, unless you have a late model engine. Also with the later models, don't get the ones with a computer controlled tranny. That would make it an aode. Let me know when you get started. Good luck!
Just make sure you get one early enough that is uses the TV cable. The latter ones are electronically shifted. I don't know which years saw the cutover, it was probably a different year for each car. Lincolns and T-birds first then mustangs then trucks.
If you are doing anything high performance be aware that the stock AODs were notoriously weak in a few areas. This can easily and cheaply be overcome by buying the appropriate parts. For normal street driving with a normally powered motor you'll probably be fine with a stock AOD though.