If a caddy/TH400 engine will fit down between the frame rails and under the cab, an LS will as well. The 4L80e is longer than a TH400, but the same height.
On the ill-fated trip from Alaska to here last summer, the 6.0 4L65e in our Escalade got 10.2 mpg pulling an 8100lb trailer (somewhat over the bumper tow rating). In my mind, that is bad mileage.
At the end of the day, go with what you like. If you want a fuel injected truck, the LS is the easiest way to do that. If you want to stick with a carb, the Caddilac engine is a fine choice.
