Swap an old 6.2L Chevy in there. Put it with a 700R4 auto or a SM465 manual trans. The T-5 won't hold up to any diesel no matter what. The auto will give better mpg, but the SM465 is strong. If you run the SM465 you should regear the rear end to 3.07 to give you better economy. However, with most diesels you may have a problem with the stock size rear end. Unless you stick to a lower power (6.2L would work fine for this) engine, you are gonna blow that sucker sky high. It was never intended for a hi torque motor.

Turn up the injection pump a little on a 6.2L and you should more than it's current motor ever thought was possible, be one of your cheapest options, keep the Bowtie motor under the hood, and get in the mid 20's or better for MPG.

I know they make kits to put a 350 under the hood of an S-10/S-15 and the 6.2L fits in the same place a 350 does. I know because I put one in a Suburban that had a 350.

Biggest differences;

You are gonna need a hydroboost brake system, a larger radiator, a different transmission, probably a different rear end, a stronger engine crossmember and that's just the extra stuff on top of a complete motor. On a nice note, to make a 6.2L run, you need only one switched power wire to the injection pump, and starter wiring to make it run. 700R4 is also an easy automatic to use because when you set it up correctly, you only need one wire to that as well to lock it up.

Lots of good info here, have fun with the conversion, no matter what motor you decide on.