I think you should take it apart, have the whole thing hot tanked, and rebuild it. Modern cams are so much better anyway, and don't cost that much if they're flat tappet. And there are some really good heads out there that don't cost much either. Check out Summit and GM Performance Parts for starters.
That sludge could be in some critical oil galleys too. If the sludge is that bad, I don't think I would want to trust it.
