As underwhelming as the stock XS engine is, spending all that cash on the engine alone, is hardly the best move, (if the plan is to leave the bike otherwise stock)
Brake and suspension upgrades should be first priority, then some basic engine upgrades like ignition, carbs, filters and exhaust. Then look at shedding weight, the stock XS has some ridiculously heavy oem components (front brake discs, steel fenders, rear wheel, 530 chain where 520 would be fine, foot pegs and controls, late model indicators are real heavy too, get some XS2 ones)
When all this has been adressed, you can get on with engine upgrades. Jerry Heiden in The Netherlands ("Holland") offers 85 mm big bore kits, giving 840 cc, or even more with a stroker crank. Then Craig Weeks offer the CNC porting of your head through 650 Central. Spending $6000 should be no problem....But look at brakes and suspension first!