You can use a modified 16v, but the more modifications you run, the more weight you have to run so the Power to Weight ratios stay the same regardless of weather you go low weight, low power (cheap) or high power high weight (more expensive).
For example a Mk2 with a standard 16v engine will run significantly lighter than a Mk2 with a highly modified 16v engine.
So the guy with a very highly modified 16v motor and pots of cash isn't going to have an advantage over the shoe string racer.
Should make fantastic racing because you will get some cars that are very quick in a straiht line, but slow in corners so there should be lots of overtaking.