Hey guys, sorry for now posting in a while. I have been so irritated with this whole thing, I haven't wanted to give my experience and final result.
Well, first off, it looks like the heads were machined incorrectly. After getting several companies/machine shops and the BAR involved, it looks like something was up with the original shop. The heads had a .006" (6 thousandths) gap on each side between a water jacket and a cylinder. There was also a .002 - .003 variance from port to port (intake to exhaust) across the whole head. I had 2 or 3 reputable shops take a look at the heads, and they all said that either the machine was wacked out, or the machinist basically ran it on a belt grinder to surface them. Long story short, it killed the motor.
Of course, the machine shop was insistent that I had done it and that there had to be way more then 120 miles on the heads. In the end, I ended up with a refund of my money from the head job ($350.00, whoopty do). The individual at the BAR and every shop I went to said there was no way it was my fault, but the hard part in small claims court is proving it, since there is no documentation of what I did and it was not done by another shop, so it would be my word against his.
In the end, I ended up with a brand new Ford/Motorcraft 5.0 long block. This includes the entire engine from the oil pan up to the lower intake. The only thing they used off my old motor is some of the sensors, and the upper intake and computer controls, etc... Whole job ended up coming in at $5300 which included all new tensioners and pulleys, a new waterpump, pressure testing and boiling/cleaning of the radiator and of course the new motor and installation.
The new motor has almost 500 miles on it now. I have to take it in next week sometime to have the first oil change done and have a few things tighten up (my damned exhaust leak which I had finally gotten rid of is back... *grumble*).
The good news is that the motor seems to be running strong. I have not had the backfiring above 4,000 RPM, although I do still get a slight pop when its shifting gears. I am going to have the shop check this out while they are doing the oil change and tightening up the exhaust again. In addition, I am going to try and find out what sensors were replaced with the motor, etc... I am still trying to track down exactly what caused my popping/backfiring in the first place. I think Glacier may also be able to help me with all his fancy Electronics tools (woohoo), so I will keep this thread alive as I continue my investigations.
My new question is whether or not I want to keep the X. It has just over 105k miles on it right now, and other little things seem to be having issues. The brakes need to be done again soon (I will not take it to a shop this time) and the transmission/transfer Case probably needs a looking at. The downside is I now have $5300 into for the new motor plus I still owe almost as much in loan payments on the thing. Only time will tell at this point. Part of me says keep it and run it till it blows again, the other part of me says get out while I can. With a little over a year left of college, I just need it to last me that long and then I can afford whatever. But, we'll see.