Hi Alex.  Welcome!

IMHO, a good running engine is more important than an operational A/C.  That may depend on your location.
In any event, a 1.9 L engine with 204K miles is into the end stages of life unless it has been well rebuilt.  The 2.2 engine you mention is not a standard VW engine.  It is either a Subaru engine or an upgraded VW engine.  In the case of a Subaru engine, there are adapters needed to install it in a Vanagon.  Be sure all install parts are included with the engine mentioned.  Also, before buying, do a compression test and anything else you can think of to check out this engine.  $500 is a small amount to pay for a good running 2.2.
Use this list, which has many knowledgeable folks (of which I am only barely in that group), to help you with your new purchase.  You will become somewhat of a mechanic to your new ride, but the places it will take you and the things you will see will be worth it if you are the adventuresome type!

Good Luck;
Dave B.

On 07/15/14, Alex de Cordoba wrote:

Hello Vanagon People!

I'm thrilled to be the newest owner of a '84 Westfalia and I'm in the process if tending to all of its needs.

The AC unit is an in dash Behr model. My mechanic tells me the compressor is malfunctioning and needs to be replaced. The evaporator is also leaking and there's probably more leaks in the lines running the length of the van.

I got a rough estimate to repair the AC at $1500-2000.

This gets me thinking... should I plow that money instead into upgrading the engine to something more powerful than the stock 1.9l motor with 204k miles?

What's the best use of my limited funds?

There's someone selling a 2.2l waterboxer with all accessories including the compressor for $500. Do I want to spend the time and money putting in a slightly better engine?

Thanks!

Alex de Cordoba
323-801-6543