Steven,

Based upon my experience as a transaxle builder in my own shop and at
a VW dealer I tend to agree with your self diagnosis.  The orginal 3rd/4th
gear hub slider tended to crack due to stress and mainshaft bearings fail
left and right on this type of transaxle.  Sorry.

Todd Hill
VolksWerks Transaxles
Olympia, WA

PS- I have been known to be wrong before!