I've had an 85 Chevy K10 with a 700R4, a 95 Blazer with a 4L60, and currently an 04 Trailblazer with a 4L60E. They all had 3.42 gears, and I'll tell you that they ALL needed steeper gears. I wouldn't use the 700R4 or 200 4R, without at least a 3.73 rearend especially in an old bolt. I know the 261 has more torque than a 235, but you still are only going to have 150 HP max. You would probably be happiest with a 4.10 gear.
If you go the 700R4 or 200 4R route, do yourself a favor and get a shift kit from Transgo or Superior. It'll be well worth it. A better 2nd gear and OD servo will always help too, it'll help hold the trans in gear better and help with the "engine flare" that both of those trannies are known for.
