Used to do it years ago (early 60s), the reason commonly given was that it acted as a sealer for the micro scratches on the head and block. I personally have wondered over the years if it's real benifit wasn't to act as a lubricant between the head/block and gasket due to slightly differnt expansion rates during warm up.

As far as paint, we just used what ever cheap aluminum paint was available. Personally I'm with sg4356, I'd use copper coat spray on them.