I'm assuming that the machine shop is going to sonic test the bores and flux for cracks (close attention to the main saddles and webs) ...

The passage he is talking about is most likely from the pump to the oil filter adapter and from the adapter in to the first junction. I believe the stock size of that oil passage is 3/8". There is no reason to make it 1/2". If the machinist is concerned about oil feed from the pump he can clean up the passage and make sure there is no obstruction where it makes the 90 degree turn.

The reason for making sure you have the correct clearance on the rocker arm bores to the rocker shaft is that 90% of oil burning problems on FE's can be traced to worn or incorrectly installed rocker shafts. Loose rockers on worn shafts equals valve covers flooded with oil.

The reason for an aftermarket pan with a high volume pump is that the stock 5 qt pan can get sucked dry really quick. Some people I know just run an extra qt of oil in the stock pan with a windage tray and added baffles to the stock pan so the oil stays in the sump during acceleration. Another choice is you are handy with welding sheetmetal is increasing the capacity of the stock pan.

The reason for the oil restrictors is that most FE's are top oiler design. The oil first goes to the camshaft bearings and is then diverted to the crank main journal bearings and rocker shafts. When you restrict the oil feed to the rocker arms it forces the oil to go to the main bearings where it should have gone in the first place (corrected in the side oiler design).

I suggested shorty headers because they have less clearance problems than the long tubes and cost less than the factory cast iron headers and the shorty's are a vast improvement in letting the exhaust breath over the factory log manifolds.