I would recommend either buying or borrowing (some stores let you borrow, and some public libraries have them) a '65 Ford Mustang repair manual.
If the gasket is gone (it's just a thin piece of insulating material), replacing it is a pain, but not all that expensive if you do the work yourself. You will need mechanics' tools - which some stores will also let you use (AutoZone is one).
If the head is cracked, you would see more problems than milky oil. It's probably not water coming out of your tailpipe, either. Get the manual or take it to a mechanic.
You remove the cylnderhead. Afterwards, you clean the head profesional shops use an acid bath to clean it. Then they have a magnetic power that you can sprinkle on the head, which will align and show the cracks if any in the head.
After that get the freeze plugs replaced since you have the head off and then re install the head. on the car.
used to it cost about 200$ for a head job at a machine shop.
How many miles are on the engine and is this car a restored vehicle or custom? If neither, then i would first check the local engine re-builder for any deals. The shop i use (DFW area) its under $800 for a rebuilt 289. I take them the engine, takes about 2 weeks and its done and warrantied.
If that route will not work, then you must take the heads to a machine shop and have them checked for damage, warping or stress cracks.
When installing the heads, the bolts have to be tightened in a certain order and torqued properly.
You can get a Chilton or Haynes repair manual and it should have the instructions. Once you get the head off, take it to an automotive machine shop and have the magnafluxed for cracks, also get a valve job done on the head and the head trued up to get rid of any warps.. You might want to get a 3 angle valve job while you are at it. It doesn't cost that much more. Get a quality head gasket and put it back together according to the repair manual. Also, rent a torque wrench and tighten the head bolts in the required pattern and torque settings. Good luck.
ps -- Think about throwing some more cubic inches under the hood, like a 302 or a 351.?
You take off the heads, clean then up as best you can and take them to the machine shop to see if they are good or not. If they are, you put a new head gasket in place and torque to specifications using the proper sequence.
Is the engine a 6 or 8. if its the latter remember you have 2 heads. Replace both gaskets while you have it torn down. Better yet just rebuild the eng. because the compression will be restored back to 10.5 to 1. Weak rings and other gaskets will give up and then you will have to rebuild the eng. anyway.