Second, I agree with Realmongo.....I wouldn't "mod" anything on your car that you can't easily change back, except maybe some "safety" items, i.e.: swapping out the old single reservoir brake master cylinder for a dual reservoir.
im with krash kendall, keep that thing as orginal and keep it clean, and buy either a 65 or a 66 that tons of which were made of and build that up. 1964 1/2 was the only year for the 260 in the stangs, i wouldnt mess mith it IMO
Ok, you asked for mod suggestions so unlike my fellow stangers' I'll give you some suggestions. But I do agree that you should keep from making any changes that are permanent. Granted I disobeyed those directions everyone gave me with my fastback and now they all say it looks great and it wins shows. So in the end, it's your car do what you want.
Here's my suggestions:
If there's any reliability/safety issues like electrical, machanical, or brakes. Start there first!
Next do the brakes...upgrade at least the fronts to discs and add a booster.
Then put some wheels and tires on that thing. What ever you like best.
Then do some performance stuff to the engine to help it run better. Like upgrade the ignition system, the intake & carb, Headers & Flowmasters, Higher output Alternator (always good for an upgraded stereos).
Next re-work your Tranny because you probably have a 40 some year old C4 tranny which isn't the best daily driver tranny until you have it re-done.
Oops I forgot about cooling. Looks like you live in SoCal or some climate like it. You're going to need to upgrade your cooling. So add a 4 core rad (looks stock but cools as good as a Aluminum), water pump, 160* thermostat, all new coolant with water wetter to help keep the temp down.
I'd also look at the suspension. Upgrade the front and rear springs. Replace the front sway bar with a much larger bar 1"-1 1/8". Maybe even add a rear sway bar (have to drill 2 holes on each side sub frame so think about that before you do it). Those upgrades will help it to handle a little more like a modern car.
I think all that is a good start. Make sure before you start that you decide exactly what you want the car to end up like. Otherwise you'll waste money on things you don't want or match with your idea of a final product. So make a plan and write it down.
I say your car is your car, so do what you want to it. There's nothing you can do that the next guy can't undo (watch overhauling).
If you have the room, you could always pull the 260, have it rebuilt and put it in the corner and build a stroker motor and put in an AOD or something, just what ever you take off, keep unless it's junk. So the engine, tranny, and rear, stash away so that you can put it all back to stock if you ever want to sell it or ???
Other then that, it's a clean looking car. Nice purchase