The first step in tuning your distributor is finding out what timing settings you have right now. An adjustable timing light (or timing tape on your balancer) will help you. Here are the steps:
1) Leave the vacuum advance canister port disconnected/capped. Make sure that there are no open vacuum ports on your carb(s) or intake manifold.
2) Take a timing reading with the engine running at idle. This is your initial timing, which I understand is currently 5º advanced.
3) With the timing light still attached, increase engine speed until the timing reaches a maximum value. You may find that your ending point value (i.e., total advance) will be something like, for example, 32º @ 3200 rpm.
The best settings for your particular engine will depend on many factors, such as compression ratio, age, camshaft specs, and available fuel quality. The basic guideline is to have the maximum timing advance possible across the entire rpm range without detonation (pinging). The maximum realistic initial advance will be ~15º (limited by your starter's ability to crank over the engine), and the maximum realistic total advance is 35º. So, you want an initial timing setting of 15º, a mechanical advance range of 20º, and you will want this range to climb as quickly as possible without detonation. The magnitude of the advance range is set by one or more small bushings inside the distributor. The rate of the advance is set by small springs inside the distributor.
Adjust your initial timing to 15º advanced. Confirm that your total timing is 35º advanced. If your total timing is less than 35º, change the bushing(s) in the distributor to get the 20º range. Confirm that your total advance is reached at ~3000 rpm. If it is all in by 3000 rpm but you experience pinging when driving, then either increase fuel quality or change the springs to slow down the advance rate.
Another way to deal with mechanical timing is to just lock out the distributor timing advance mechanism and leave the timing at 35º advanced. For this, you will need to install an engine start retard switch which will automatically retard your timing 20º when starting the engine. This is the way I run my mild street 440, and I enjoy it this way.
Vacuum advance is separate from mechanical advance. It does not change the maximum power output of your engine, it is just a driveability tuning tool. It only affects the "part-throttle" characteristics of your engine. This means, it adjusts (advances) your timing during those periods where your engine has a high intake vacuum. The logic to tuning a vacuum advance is identical to mechanical advance, i.e., you want the maximum amount of advance without pinging. If you have dialed in your mechanical advance, then suddenly hear pinging once your vacuum advance is hooked up, then you want to reduce the vacuum advance settings. Usually, vacuum advance is adjusted via an Allen wrench through the vacuum canister vacuum port, or possibly inside the distributor. A lot of people, including myself, don't believe that the clutter of the vacuum canister and hosing is worth the minor driveability gains on a performance vehicle, and so choose to remove the vacuum advance. Of course, if you are going for a factory look, then you will want to retain it.
On the topic of bad gas mileage and rough running at low rpms, I suspect a vacuum leak. Do you smell a real noxious smell at idle and when cruising around? If so, I am almost certain you have a vacuum leak. Make sure that all of your intake manifold bolts are tightened down. Make sure that your carb bolts are properly snugged down (don't overtighten!). Make sure that all vacuum fittings are tight, all hoses and caps are pliable and snug, and all of your intake and carb gaskets are fresh and properly installed.
Best of luck!
