Is 260F too hot for oil?

My car has an oil temperature gauge in the gauge cluster. Even when going all out on the track the oil temperature gauge has never read about 240*F. Now, a caveat: the gauge is controlled by the engine computer (DME).
240 is a fairly normal oil temp, a bit warm but it will work.
 
It depends on the oil. Some are quite comfortable at that temperature. HPL's Euro oils see peak friction coefficient at 300°F.
 
Switch to a full synthetic 10w30.
Although the Honda 390 is probably the best OPE engine ever made, when it's run hard, and above rated RPM, that is probably not the best choice. I lost 2 new Honda powered water pumps using the recommended 5W-30 oil. Like the OP, the engines ran hard, and the oil was not able to protect the connecting rod big end. Catastrophic failure was the result.
 
Oil temps above 260 really do require an oil with an HTHS of at least 3.8, and better still 4.5.
One of my first cars was a '67 Chevrolet Corsa convertible. It had an air-cooled six cylinder 164 CID engine with four one-barrel carbs. It also had a head temperature gauge in the instrument cluster. I recall seeing 425 F when running 75 MPH on the highway for extended periods. The recommended oil was SAE 30.
 
It runs hot because it operates at nearly 4,000rpm and constant wide open throttle for up to 90 minutes at a time.
 
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I just rebuilt the engine, I put the valves at almost zero lash as I expected the new tappets to wear a bit.
Zero lash is not good. Valve clearances will tend to tighten, not loosen over time. Valve seats receed faster than the cam and tappets wear.

Also tight exhaust valves spend less time fully closed and therefore have less time to transfer heat from the valve to the head. This holds more heat in the engine and also risks burning the valve.

I would urge you to set the intake valve to 6 thousands (.15mm) and the exhaust to 8 thousands (.20mm).

 
One of my first cars was a '67 Chevrolet Corsa convertible. It had an air-cooled six cylinder 164 CID engine with four one-barrel carbs. It also had a head temperature gauge in the instrument cluster. I recall seeing 425 F when running 75 MPH on the highway for extended periods. The recommended oil was SAE 30.

Straight 30 was the default choice for air cooled OPE engines for decades. Due to better results than the 5W or 10W-30's. The minimum HTHS for a straight 30 is (by memory) 2.9, but most offerings were about 3.8. Also by memory.
 
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