Doc,
Shocking pics
If it was a pothole have some photographs taken before it gets filled in again and sue the local authority. Well known fact that local authorities are not spending the money to keep local roads in a state of good repair and millions are now being paid out nationally every year (something like £50 million I believe). They should have a claims procedure for this and may well settle out of court. You will probably need to evidence the claim (witnesses etc) and make sure that any photos show the depth and width of the pothole.
I would keep the wheel for evidence in case of disputed liability - surprised that VW have dismissed this out of hand. If there was any manufacturing defect, it would be for them to cough up, but again, the onus would be on you to prove the defect.
Best of luck,
Cass
