Hey ya'll, can someone help me on this?

I have done a complete tune up on my '86 GL. I found it difficult though to
determine the degree of timing advance using the methods described in my VW
mech's manual and here by list members. Using a timing light and adjusting the
pulley notch to what appears to 5degrees advanced of the block seem (2k RPM,
temp sensor disconnected) the van runs terrible. No power. with it advanced to
what appears to be 40-45 degrees advanced the van runs incredibly strong and
cool with no audible knock. In fact at this setting it is well short of where I
begin to hear knock under load.

Facts:
1. Van has 166K miles on it.
2. I have been running 92CLC fuel just to insure against knock.
3. My temp gauge indicates 1/8 inch below the diode after warm up(ie. 40min.
Dallas, TX commute in freeway traffic at 100F). My understanding is that running
hot is one of the danger signs of advanced timing settings. Is this true?

Questions:
1. Can a knock be un-audible?
2. What damage could be occurring when all seems fine.

I wish to have my baby run fast *and* long!

relative nubie, please advise of any offenses :)
Eric Small
Dallas, TX
'86 GL
'93 Audi 100