I'd love upgraded brakes but i find the standard GTI brakes to be brilliant and really cant justify it. How much are the front disks and pads for the GTI?? £550 for complete cupra brakes is very tempting and if the gap isnt too much i may upgrade to those when i need replacements 
Do the R32 disks fit under 17" wheels or are 18" needed to acommodate?
The 345mm brakes a-la R32 need 18" rims.
I am not sure about that, as the pic shows below, there is a lot of room between the disc/caliper and the rim.
Although are you talking about the cooling airflow being restricted by the rim being too close? i agree it will be very close, but may be achievable.

Yes, but don't forget that rim is made by BBS. On my last S4, that had the identical 345 discs and calipers (albeit with a larger diameter piston), and with the OEM standard 18" Avus III alloys made by Ronal, there was fcuk all clearance between the caliper and the wheel.
So you may be lucky and find that one style of 17" rim (from a quality manufacturer like BBS)
may fit - I would still strongly suggest that you would find that many 17" rims will snag the caliper - hence the basic advice that 18"s are needed for the 345 set up.
OH, and you are running them underinflated (and yes, I have read your next post

), there is excessive wear on the outer shoulder. What pressure do you normally run in the fronts?