I'd just let the exhaust leak go for now. If it is rusted inside, you would likely blow through if trying to weld it up.

As far as the carb rebuild goes, as long as everything gets fixed properly, that isn't a bad price. You can get a remanufactured carb for just over $300 that will look new at various different places online from what I was able to see in a quick search.

 

I took my carb today to the shop and they said $600 to rebuild it. Apparently the quote I got over the phone ($280) was for old-school no computer / no SMOG ones. In that case I think it makes more sense to buy new one from rockauto.com, what do you think? Also, I run some estimate and other than the carb I think I will need:
- EGR valve ~$80
- SMOG pump ~$160
- Distributor ~$200
- all of the vacuum tubing ~$30

Does that sound about right?

Also, I noticed I have a frame cracked on steering wheel gearbox, when I move the steering wheel, whole gearbox moves slightly. I keep uncovering more and more stuff. Will have to deal with all that.

 

I'm not sure how good this site is, but I-5 Automotive has a reman E4ME for $325 plus the ride I'm sure.

Concerning the frame cracked behind the steering gear box, this is a fairly common issue. There are a number of kits available for addressing this ranging from a reinforcement bracket that bolts in to a weld in reinforcement. The weld in reinforcement is pretty much necessary now that your's is cracked. The bolt in one can strengthen things enough to limit the possibility of the frame cracking. OffRoadDesign has both options covered. I'll likely do both to my K5 when I get it down to the bare frame. I do not have any cracks, but I also do not want to ever have cracks.

Your parts list looks fairly good. Hopefully all of the wiring is intact and still functional. If not, that is going to be another twist that'll cause you to pull your hair out. A FSM set will give you A TON of information into how everything goes together including wiring diagrams which you may end up needing.

You may want to look at getting a FSM (factory service manual) set. They pop up on eBay from time to time.

 

@swartlkk, thanks a lot for your help. I'm going for shoulder surgery tomorrow (torn labrum / SLAP), so will be out of the game for couple weeks. I will try to educate more in the meantime and potentially source some parts and manual.

 

I'm getting back on my feet after the surgery! I recorded a video of steering gearbox

worth noting is that:
- whole box moves
- it hisses on both extremes - turning all the way left or right causes weird noise

Is that at least stock 4WD Blazer 85 steering gearbox? If so I will order these kits to fix it. Also - if I put extra plate between frame and steering gearbox, will it not change whole geometry of the steering system?
[attached pictures got rotated 180 degrees, no idea why]