Update, I have found some info that may help, and has made me think twice about something i was going to do,
Uwe Ross, the creator of vag-com, has found in the past that 98 vw's with aftermarket stereos can have an adaptor fitted to the harness which (through bad design) allows 12v to get onto the K-Line (data line to the ecu and all other controllers) - this can blow certain test interfaces and the ecu as well. If you have a non vw radio, measure between pins 7 & 4 of the OBD socket with the ignition off, should be 0 volts and with it on, around 5 volts. if 12v shows here under any condition then your ecu may be already dead or in a coma! top left pin is 1 and numbers run to the right. If you do get 12v here, disconnect the adaptor lead linking the stereo to the cars harness and check that the 12v has gone away. Disconnect the battery for 15 minutes, then reconnect. Turn the ignition on for 15 seconds and then try to start the car.
Another thing I came across is several reports of people swapping or otherwise removing the instrument cluster and then finding the car wont start. The cluster (for a certain range of vw engine immobs) contains a chip for the immobiliser and can lose its info when removed.
If another set of clocks is fitted from another car, the cluster must be matched to the ecu and immob using vag-com but is a complicated procedure. Immo2 and Immo3 are affected by these issues,
thought maybe these could also be your problem but would expect vag-com to pick up a dtc like this article suggests:
Quote:
17978/P1570 - Engine Start Blocked by Immobilizer
Possible Symptoms
Engine starting but stalling immediately or not starting at all
Possible Causes
Key(s) not matched
Instrument Cluster not matched
Engine Control Unit (ECU) not matched
Engine Control Unit (ECU) Power Supply faulty
Possible Solutions
Match Key(s)/Instrument Cluster/Engine Control Unit (ECU)
Check Engine Control Unit (ECU) Power Supply (Relay)
If no other immobilizer related fault codes are stored and the immobilizer related meas. blocks are fine except Engine Start not allowed, try cold-booting the car's computer. Remove both battery cables from the battery. Short the battery cables together (away from the battery) for about 15 seconds. Reconnect the battery.