Hi Joe,
I concur with Todd's reply. Essentially, an open curcuit "signals" low water
in the accumulator tank. The 2-pin connector on the tank sensor can become
so crudded (if this is a word) with non-conductive crud that the signal
processor at the indicator in the Speedo section of the dash sees an open
circuit and thinks there is low water back in the engine compartment. Clean
the 2-pin connector, leave it disconnected, start the engine...... the low
water light ought to keep blinking?  If the light keeps blinking....The
electronic sensing portion is ok.   Use a short piece of wire and temporally
short the 2-pin connector, restart the engine, the light ought to stop
blinking with the engine running. If the light keeps blinking under this
check..... well, my best guess is a problem in the indicator section of this
system or an open circuit somewhere between the Tank Sensor and the Dash
Sensor Processor. The Sensor for the Tank, if you suspect it is bad......
essentially always indicating an "open" circuit,  is available, even from a
VW Dealer at reasonable cost. The sensor screws into the tank, sealing with
an O-ring.
Good luck with finding a cure.... Phil Z.