Unfortunatly most mk1 owners know what they have got these days, so getting a decent one, for peanuts, is going to be hard work. Just keep an eye out for an old biddy driving one, then follow them home and offer them some firewood for winter, or mint-humbugs!
As for a conversion - it really does depend on what you start with and how deep your pockets are. Anything from a 2.0 8v into a GTI to a new 1.8T is possible. Or you could go all out and build it around a TVR chassis, engine and gearbox!! Anything is possible, it just comes down to cash and imagination.