With apologies to Charlie, I'll fire off a suggestion shotgun filled with random questions and WAGs and see if anything lands or possibly helps you think of something else:
Both engines are now limited to ~3200 RPM, yes? And spec WOT RPM is 4200-4400, right? So it there might be some possibility 2 cylinders on each engine are not firing (correctly) *
Have they been limited that way ever since you have had the boat? How long?
When you advance the control throttle levers underway, do the engines reach 3200 at ~~3/4 of full lever travel, or not until the levers hit the WOT stop? [ Possible cable adjustment needed to fully open the throttle plates? Have control cables (or controls) been replaced without checking adjustment?]
Have you had the "20x23" props prop-scanned to see what you may really have on there now?
Are the props and hull quite clean or is there substantial fouling? Is the boat sitting lower relative to the painted w/l than it used to? ( compartments with excess retained water?)
Keep in mind , a 37' motorboat can get a LOT heavier due to many factors over 36 years and that alone could require even less prop pitch. And if by any chance by "350s" you mean the 350 c.i./270 hp Crusaders and not the 454 c.i./ 350hp engines, those would be under a lot of strain already to power that boat. 454 c.i.s , yes?
*Suggest trying attaching a timing light inductive pickup to successive plug wires to confirm each cable is carrying ignition pulse.That doesn't necessary mean those cylinders are firing , or at the right time.
*Have you triple-checked firing order for each engine? Plug cables all have continuity?
Standard LH rotation engine as viewed from flywheel end toward the pulley end: 1-8-4-3-6-5-7-2 .
Opposite RH rotation: 1-2-7-5-6-3-4-8 .
(Both LH & RH distributors turn CW.)
(DON'T judge engine rotation by prop shaft rotation, unless you know for sure the reduction gears do not have reverse output like mine have.)
What kind of distributor conversion kit did you use?: Pertronix Ignitor I or II? Mallory? Were the ballast resistors retained or discarded? Could the wrong kits have been installed ( but sounds like your timing advance may be good, depending on initial timing setting. )
Was this problem there before installing the kits?
Have mufflers been replaced with more restrictive ones?
Any chance the tachs are on the wrong pulse switch setting?
If you know for sure throttle plates open all the way with the controls,, and all cylinders are firing when they should and fuel quality is high, you might try having someone else run the boat at high throttle setting( >3000++ RPM while you slowly rotate each way the loosened distributor of one engine to see if there is any obvious improvement at full advance. But if so, I'd advise retarding total timing "a bit" to help avoid damaging future knock-detonation . Note, the Crusader factory techs do not recommend this, recommend only setting initial base timing. With your conversion kit I believe this will still rely on lubricated centrifugal mechanical advance with proper springs.
FWIW- The owner's manual I still have from my old 1988 Crusaders specs min. 89 octane for either engine.(-Is your fuel fresh or old/stale?)
And spec'd cranking compression of 130 p.s.i.
Initial timing : 10* BTDC ( Are you sure you are reading the timing notches correctly? Or are you using an advance light set to 10*BTDC and flashing on the 0* mark?)
In 1988 the lifters were hydraulic with no lash , ...and it doesn't mention preloading. No guess as to what the lash should be on yours, but you did mention 2 suspicious valves on each engine.
You are obviously experienced, so sorry for all of the above you already know and/or checked but sometime in the thick of it we overlook things until others may kick in our memory.
Phew, at least you should be able to get to sleep after reading all that! Best luck.