If one had a catastrophic engine failure, like a rod through the block, can one "update" by putting an 88 engine (internally balanced, better oil pan gasket, 15 more H/P, etc) into an 85? I'm kind of an OEM guy, but I'm just trying to cover my bases in case "what if?" were to happen.

You can find all the information already posted here regarding this type of swap... but suffice to say, it isn't simply "plug and play".

Use the 85 V6 motor mount and bracket
Use the 85 V6 exhaust. The bend around the motor mount plate is different on the 88
The 88 V6 has a plug in the water pump outlet you will have to remove.
The 88 Oil Sending Unit is different. If you use the 85 harness, you will have to replace the Oil Sending Unit with the 85.
The 88 motor is internally balanced, so you would need an internally balanced fly wheel for a manual swap.

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-Brian

My 87 GT Poly Suspension Upgrade (all pics) thread
Removing the roof panel
My HUD install thread
Modified stock air canister and base to 3.5 inch for 3800na