The reason that you cannot set the base ignotion timing yourself is because the ignition timing is constantly being retarded and advanced by the engine control unit. The timing is retarded until pinking is sensed by the knock sensor, then it is advanced by 3 degrees again. then the process starts again! - therefore, if you put a timing light on, you will never see a true reading for the ignition timing!!!!!!
To set the base ignition timing, the engine control unit needs to be in 'Basic settings mode' which needs to be done by VAG diagnostic tools 5051/5052.
Now this is the clever bit! - If the base ignition timing is wrong, and the engine is pinking, the knock sensor will sense this and limit the maximum engine revs to 5000 rpm to save damage to engine!
To have the timing set on a VAG diagnostic tester is the quickest, cheapest and easiest thing to do first.
Now, the only other thing that would cause these symptoms - in my experience is the Hall Effect Sensor, which is housed in the distributor, although if this is faulty, you may as well change the whole distributor, as it will cost you more in labour charges to strip the disi and replace the sensor!
Any questions?