Is this a good idea and what type of paint is reccomended?

Use high temp paint of course. What exactly are you wanting to paint on your engine?

the usual heads, block, and exhaustm etc

Will high heat paint peel off over time on the block?

YOu have to make sure the engine is completely clean and oil free. Usually this is done after an acid bath during a rebuild.

The paint should hold up if done right but it wont stay on the exhaust even with high temp paint.

Acid bath? Would just degreaser and a wire brush work? I plan to swap out my engine and tranny so I was going to do this while the motor was out of the car.

Well I'm getting ahead of myself here again. If I were to build up an engine from the bottom up then yes, full acid bath and flux the block looking for small cracks. A good machine shop can do this and paint it for you for under $150.

If your building the motor yourself and skipping this process, then clean it as best you can. Make sure and get at all the nooks and crannys and use a pressure washer if you can.

But a good word of advice here, parts are expensive. If your putting in performance parts they're really expensive. Dont risk a major build up saving a few dollars by skipping the flux and acid wash. If theres even a minor crack, the heads or block are never going to last.