Lurker here also.  The only way to get more power out of the inline 4 (you
did not mention the type 1.8, 2.0 std head or crossflow 93'+) is like you
said with a 260 cam.  You also need a GTi big valve head if you don't
already have that.  Also need some type of K&N or cone style air induction
system and big headers/pipes.  The Digifant system is ok and I think APR
makes a chip for it, but more tuneable would be a CIS-E system (fully
tuneable mixture, timing, idle) or CIS-E Motronic system with chip (all
tuneable except idle)  Basically you need to investigate the GTi/GLi tuning
methods to make your current engine develop more power.
http://www.nwlink.com/~vdb/cars.html Be aware that you're only going to get
about 140-150HP max out of an 8V motor without spending BIG bucks.
Matrix Motorsports makes a VW 8V turbo kit that is good for over
200HP...hmmm.  The Subaru 2.3L motor is better out of the box simply because
of more displacement and valve train efficiency.  Vanagons should have VR6s
in them in my opinion though.

Rich Blake
90 Carat WBX
88 GTi16v
88 Jetta 8V
01 NB1.8t
Used to have a 96 Subaru Legacy 2.3L, smooth torque curve and ultra-reliable