"No, the Mustang was not a really good car until the 66 or 67 model, I think."
I have to disagree on this matter of opinion. To me, the Mustang was only a great car for the '65 and '66 model years. It was only then that it was a pure and true "pony car." They got big and muscly after that, and lost much of their European-inspired character and nimbleness. They also got more complicated mechanically (smog laws, larger engines), and thus less reliable and poorer performing in general...but that does not mean "bad" in terms of reliability. (There were exceptions in the area of performance, of course, as the horsepower race heated up, but in general they became slightly more mechanically complicated.) I think it was still an attractive body style in '67 and '68, but it had a different character by a long shot. It was big and "snarly" looking and could hold a big V-8. There are very few '69 and '70 models that I think look good (all fastbacks). They had pretty much departed from the original pony car concept by that point and were one step away from the hulking, hideous beast Mustangs of the early '70's. A travesty, those were. I honestly prefer the Mustang II to those ones!
As for the statement, "There was only one Mustang with a larger engine. It had to have a raised hood to allow for the size of the engine," it is just dead wrong, through and through. I have no idea where that factoid came from. It just isn't true, in any way. I listed the engine options in 1965, and none of them were big or required a "raised hood." The Shelby GT350 had a purely cosmetic hood scoop, but the engine was simply a K-Code with intake and exhaust modifications. It was no larger in displacement or physical size than a regular K-Code Hi-Po engine (though it was slightly higher in power due to the aforementioned modifications). It did not require a "raised hood." It just had a scoop for looks.
So, again, there were three '65 Mustang engines other than the standard L-6, not counting the Shelby-modified K-Code. They were all effectively the same size physically and in displacement. None of these engines can be considered "big" in the world of V-8's. None of them required a "raised hood." And none of them should have got any less than 12 or 13 MPG in the city unless something was seriously wrong with the tuning of the car or the habits of the driver. Both of those reasons are not faults of the design.
The cars were the model of simplicity and reliability outside of the world of European cars like Volkswagens, as were other domestic "compacts" of the day, such as the Chevy II. There is nothing mechanical on the car a 10-year old cannot replace in a day's work, and very little that would ever need fixing in the first place. If you were getting 7.5 MPG without hot-rodding all day long, then whoever was working on your car had no idea what they were doing.
At any rate, the whole point of this is that your figure of 7.5 MPG is at best atypical of the average car of the day, so is a bad figure to use as an example, and at worst a purposeful exaggeration to bolster your point. I think your point is correct, but the exact figures are wrong. If you had said you were driving a Cadillac all day long in bumper-to-bumper traffic, I might believe it. But not a '65 Mustang, with ANY engine, not even "the big engine." Not unless it had a fuel leak or something – an atypical situation.
P.S. In your comment about trading it in due to size, I am assuming you thought it was too small. Because there wasn't a whole lot that was smaller at that time.