I can't believe it's been this long since I've gone through this site and done a cleanup... 2 years since you posted these questions. I'll go ahead and answer in hopes that you will still get them.
First, yes an automotive engine can be used in an experimental amateur built aircraft. I am not locked into any engine at this point and time, but I would really like to use an aluminum block V8. I particularly like the project at
Quiet Aviation.
As for legalities of building an experimental from the ground up, they are very well defined, and all available on the web. The Experimental Aircraft Association (EAA) is a great resource, and there is probably a local chapter near you where you could visit and talk to folks that have been doing this kind of thing for years.
The bottom line with an experimental aircraft is that as long as you can show that you did 51% of the work in constructing it, and the inspector determines that the work was done well and there are no glaring security issues... then you can build it and fly it.
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