anti freeze is not a coolant, it has a slight cooling capability how ever its purpose is to keep the fluid from freezing in the winter.
you should drain your system and run either distilled water and water wetter or engine ice as a coolant. also look at getting a billet water pump impeller if you havent got one already.
120 psi is fine. as long as your within 10 lbs on each cylinder your fine.
as far as cutting your head goes it depends on what your trying to accomplish. if your just wanting more compression and still able t run pump gas you "should" be ok with 20 thousandths. the only 100% for sure way to know if your safe though is a compression test.