230,000 miles is plenty on any transmission, especially a 700R4. I agree with you that it has an unnecessarily deserved bad reputation. However, all reputations have their roots in something. The high failure rate of the early 700R4's as well as GM's decision to use them in large diesel powered 1 ton trucks probably is one of the biggest contributions to this reputation. Still, hot rod guys all over the country flock to this transmission because it operates independent of a computer and gives them the overdrive to make their low gearing a little more tolerable on longer trips.
$600 is a smoking deal on a rebuilt 700R4. Heck, a used high miler goes for $400 or so in these parts. This is probably the route I would go. If you were looking to build a wheeler out of the truck there are other options that could be looked at (like that TH-350), but for a weekend warrior I think keeping it as close to stock as possible is important. The Turbo 350 is not without problems either. It just happens to be considered more reliable and the fact that you could repair it in a gravel pit with a set of tools purchased from the discount bin at Harbor Freight earns it a lot of credit.
The TV cable is the most important issue when setting up a 700R4...of course it is the only thing you should have to adjust. It's also extremely easy to do and takes all of 5 minutes. I wouldn't worry much about it. Heck, it's even a relatively easy transmission to change out thanks to the big inspection cover under the torque converter. I like not having to rotate the engine to get to the bolts.
Your mechanic is very intelligent when he tells you that a swap to a 5 speed is not worthwhile. On top of the cost involved with getting the transmission, crossmember, pedal assembly, etc, they can be a real bear on the S-series Blazers. More than once I've had to loosen the body mount bolts and jack the body up to get at that darn upper left bolt on the bellhousing. There is nothing more frustrating than being able to get a wrench on a bolt but not being able to turn it due to space. Or getting 3 feet of extensions on the impact with a swivel socket only to watch it fly apart and send extensions sailing everywhere the first time you hit the trigger...