The smallest engine in recent history was the 305 V8 which was discontinued (in the Suburban) in 87. However, smaller is not always better.
A big, well designed, efficient that's not working hard usually will get better MPG in a large heavy vehicle than a smaller engine beating itself to death.
For example, Some guys with new 2500 Avalanches with the 8.1 litre V8 get up to 18MPG on the highway.
That said, there's no doubt in my mind that a diesel is the way to go. It will give you excellent mileage, much more power than a V6 (which you can't get anyway) or 305. If you're not a diesel guy, don't let it scare you. They run great, are extremely reliable (PMC cooling excepted, get a cooler kit) and get better mileage than any gasoline combo. Plus if you have a biodiesel dealer in your area, you can get even better prices, lower emissions, and do your patriotic duty to reduce foreign oil imports. ;')
If you went diesel, 96-98 is the way to go IMO. That or a pre 91 non turbo, but the turbo 6.5l is an all around good performer.
If you insist on gas, than look for a 96-99 350/5.7l gas model. In those, a 4x4 really doesn't cost you any significant MPG when you are not using it, and it's sure nice to have in bad weather. The older, pre 91 machines will use a little more fuel than the newer ones due to the older 4x4 system.
Whichever one you get, put synthetic oil/lube in it, a good air filter (like a K&N) and watch your tire pressures. A free flow exhaust, and computer chip upgrades can also improve mileage. Remember most mods meant for modest performance gains really just make an engine more efficient, and therefore, as long as you can keep your foot out of it, you will also get improved MPG.
My 99 Tahoe had a K&N filter/intake kit and it never got under 16 MPG no matter how hard I flogged it, and got as much as 20 MPG on a good day.
Good luck with your search and keep us posted on the results.
P.S. Diesel plus veggie kit = extreme cheap fuel.