Skip,

It sounds like you're pretty set on converting to a watercooled engine, but what you're talking about is a large project -- even for someone who does this regularly.

Here's some rough figuring:
To do the 1.6t you'll need quite a lot of parts: diesel donor Vanagon (for all the mounting bits, coolant lines, radiator, wiring, etc...), a donor 1.6t Jetta/Golf for the engine, possibly a quantum exhaust manifold or modify the stock to fit. Clutch, injector pump rebuild costs, the list could go on and on. Even assuming both donors run perfectly I'd guess a few grand in parts alone, easy.

Shop time probably starts at $50 an hour and even if you figured just 60 hrs for the whole deal you're looking at $3k in shop time. Timing-wise I'd be surprised if any shop would give more than 50% of their time to one project. That means your van will be in the shop for 3 weeks or more.

Add it all up and you'll have 5-6k in your van AND you'll have a worn engine (add maybe $1.5k for rebuild if you have a good core). You'll also be running a drivetrain and cooling system which are unproven -- meaning something will fail once you're on the road, and no-one around to fix it. Personally, I wouldn't trust it for long distance until after a few weeks of shake down.

If you're dead-set on it, the next logical step would be to start getting quotes from shops willing to do the work. I, for one, would be interested in hearing the costs (partially to see who WAY off I really am). It'd be good to have in the archives, too.

No matter what you do, keep the list informed since that's what it's for.

john