Cylinder liners currently have O-ring grooves. Grooves are about .038" wide.
Between the grooves at their closest point, between the bores, is only about .030".
So at that same point, it is about .105" from groove inner ID - to - inner ID., .038 + .030 + .038 = .106

1.) Which head gasket should I use ?

2.) The liners stick up a few thou above the deck. Is this OK with a conventional gasket ? Cometic told me No, with theirs.

3.) Should I just fill in the grooves flush to the top of the liner ?

Call SCE gasket company at 661-728-9200(they've been bought and moved several times in ten last 5 yrs ) and get help on getting the correct copper head gaskest for your motor
I've used a bunch of their copper head gaskets on several blown as well as N/A Hemi and other BB Mopar with no failures

I'm not a fan of copper gaskets, but I'd just deal w/ it and use them in your case. I used them on our 436" SB chevy and have no issues.