I think it would. Look at all the GT500's, Vipers, etc. out there running very low ET's and making 1000+ hp. All those cars have the OEM version of that Mag T-56.
However, thinking about the cost and thinking about how consistent it would be, I still think you should stick with the slushbox.
A T-56 behind an FE takes a good bit of work just to get it to bolt up unless you're willing to go with all-hydraulic actuation. You're gonna be in at least $800 just for the bellhousing itself, as you take a Quicktime FE/T-56 bell and make it SFI approved. I don't necessarily know if a Soft-Lok or similar would work for you, you might have to go with a hipo twin disc. Either way, you're looking at $1200-$1300 at least there.
The trans would probably run $4000+. In a heavy drag racing application, I'd be tempted to face plate the gears or pro-shift them.