Change your bypass valve luv and you'll be fine.
follow the heater hose out the side of the engine on the right hand side as you are looking under the bonnet. Just before it goes through the bulkhead there is a metal valve on the hose. I took a pic of mine to send to the vw dealer the other day, when I can be bothered I will get it off my phone and on to photobucket for you
Think theres a flap inside the dash that blocks off the hot air isnt there, maybe this is closed off? Might be best asking Horney or Diamond Hell though, they seem to live and breathe old golf stuff man.
It seems to me that your heater matrix is partially blocked up. does the heater warm up again if you giver the golf a thrashing? Normally i would get the garden hose on one of the matrix pipes in the engine bay and flush it though but your foot well might get wet if the matrix is weak and break!