GTI_Lee,
I've just picked up this thread.
I would defintely recommend getting a mk2.
I've had quite a few cars in the last few years:
Ibiza Cupra, MK3 8v, MK5 2.0 TDI (company car), MK3 16V and i've just bought a mk2 16v about 2 months ago.
The mk2 is by far the most involving car to drive and always puts a smile on my face.
I found a minter, completely standard '92 alpine white 3 dr, got power steering and electric windows, 120k. I paid £2400 which is a lot but worth every penny as it's wanted for nothing and i've got a full history of what the car's had done to it.
In terms of your insurance, you might be better waiting until your ibiza policy is up for renewal, either that or get the mk2 and put it on a limited miles classic policy and run the two cars until you sell the ibiza once the insurance has run out. I've had overlapping policies before though and you do lose out on some NCB, worth thinking about.
HTH
Stomper