Depends on how much poke you want judging by the mileage you said your car has then it most certainly needs renewing, a standard clipper on a carb is around 90bhp the gti being around 112bhp. Your motor is more likely to be running if its worn, 60bhp thats neally half a gti so it will seem pretty naff.
you could have the engine bored out bigger and install webber carbs for more poke. tad thirsty on petrol though.
you can adapt the engine to run off the k-jet fuel injection but your best to ditch it and get hold of the gti engine, you can pick them up for peanuts or a MK3 8v 2.0 which you can still run off the old gearbox, although if its crunching from 1st to 2nd it needs renewing.
tsr do engine conversions and DIY jobs but even they cost ?2500 plus.
theres a few vw owners on pvw mags website who have done the conversions you require.
i bought mine neally a year ago the gti cab on an H plate. This is no lie i have a bill from a garage who had my car for a month trying to find a fuelling system problem for ?1050 and thats just to mechanically get it to standard. when i first got the car it seems very flat and no pull whatsoever, since having the fueling system flushed, injectors cleaned, replacement manifold, new pumps, new fuel lines practically fueling parts cleaned it finally pulls. i would change mine given the chance but generally keeping the car on the road and restoring worn parts takes enough money.
this bloke who said you would only get two years out of it, go back to him and get a list of what needs replacing on the car, and do that first you might find that taking half your budget.
have a look at my cab on the gallery ive spent most of my time restoring parts and uprating parts that can always be removed if needed. apart from the wheels which came with the car when bought there is very little styling i have added purely because keeping it running is more important.
its high off the ground, its bland in appearance to some and has non of the fancy additions on the outside, yet i have 6 buyers for it and they dont ask how fast it is they just say smart car.
body repair, general fixes and some of the problems mechanically with a cab i can help but as far as engine conversions that aint my strong point.