Hello Matey,
There has been several mk2's in my family in the past few years, Although I have only recently become a mk2 GTi owner. My brother has a 1.6 driver, which we paid £700 for and it has FSH and 90ish on the clock. Its an excellent car, nice and smooth but having driven that and my 8v, I am amazed at the difference in performance.
My 8v has nearly twice the mileage, yet feels as tight, if not tighter than the 1.6, and costs exactly the same to run in terms of fuel and tax, and insurance is not much more expensive than it is for the 1.6.
One problem my brother has had with his driver is cold starting issues, what with it being carbed. This is obviously no issue for the fuel injected 8v, which also runs a lot smoother than the carbed 1.6 from cold.
Consider both options... You can do the sensible option and get a decent 1.6 and keep a couple of hundred for contingency in case something does go wrong with it.
Or, you can spend your 1k on a decent GTi, that will likely be as reliable as a 1.6 if not more, costs exactly the same to run, has twice the appeal and to top it off, when (if) you come to re-sell, the GTi will depreciate far less than the 1.6 in my opinion and you'll make more of your money back provided you take care of it.
Seems like a no-brainer.
Faraz.