If I was doing that, I would go for at least some iron GT 40 heads, some aftermarket aluminum ones, or some performance ported units. By the time you change the valvesprings, have a valve job done, etc, in the stock heads or some E7's you will be $5-700 into heads, and you could have some much better ones.
The best way to go for performance with E7's would be the Thumper ported E7's, from Thumper on this site. He seems to have a very good porting process for these.
Anything less, and you would probably want more right away.
I believe the chambers on the E5's are larger than the E7's so if you put E7's on the 85 block it will have more compression. Other than that I think they are the same. I have heard some poeple say that 85's had dished pistons but my 85 motor has flat tops, not flat tops like an 86 but regular old flat tops with 4 valve reliefs. So with that in mind, I would assume that an 85 block with E7 heads would have more compression than an 87-93 and maybe a few extra horses. I wouldnt swear to it but thats pretty much what my research on the subject has shown.
pretty much, an 85 engine IS up to par power wise with the 87 engines. TO get more power, put a better carb and intake on it, then ditch that choked down single exhaust y pipe for a true 86+dual h pipe. That should get you past the hp level of an 87+
everyone seems to agree that for the work involved you'll essentially see almost no difference in power between the e5 heads and e7 heads, they're just too close to each other. Like mentioned, pull some gt40's off an explorer, then you're talking about a "real" upgrade.