The Mk2 stays!
I changed the headgasket, cambelt, tensioner, downpipe and exhaust manifold gaskets. It took all day. The tappets clattered like hell on first startup and it only ran on three cylinders. Water in bore no4 was the culprit, which soon dried off while I flapped about in a dread-induced/embarassment at lack of success/I don't want to take the goddam head off again panic. Those new gaskets created a stinking cloud of white smoke from behind the engine, too.
Now the car seems smoother and quieter than before and (not just wishful thinking...) pokier. The old cambelt tensioner whine is gone - it's worth going for the geniune VW item here, judging by the state of the G&S supplied part after 39k.
A just discernable step at the top of the pistion travel was all the bores had to show for their 196,000 miles. That's 5k semi-synth oil changes for you!
Easier that I thought it would be, but took twice as long. Those new ratchet spanners from Halfords sure made life easier getting at the exhaust/manifold nuts though.
I think I'll keep the Mk2 until those Mk5 come down to a grand or so. Not long now...
KKK