re:  Is it stupid to consider upgrading to a bigger, air cooled motor?
I drool at the idea of a turbo diesel, or something exciting like
that.  Would it be more work than would be worth it to update the van
to water cooled?

Best bet is Porsche 911 engine, I suggest.  Saves what sounds like
major hassle of trying to install heater cores and plumbing coolant to
them.  See http://www.msdsinc.com/vanagon1.htm  Now that would be
exciting.  (An "exciting" diesel?)

Since I drive an '81 as well, I can suggest that if you can find a
waterboxer with a currently good engine, you'll be pleased with that
horsepower increase for some time and will have had no hassle to get
there.  I'm not going to do it, but if I did, I'd replace the later
model's teddy bear hide upholstery and carpet with the vinyl seats and
rubber floors from my '81 before I let the latter go.

BTW, I think there ain't no such thing as an air-cooled turbo diesel.
There is an engine called Deutz that is used for irrigation sytems and
other stationery industrial systems that's an air-cooled diesel, but I
don't think they have turbos.  I expect the horsepower is less than
your current engine, however.  Also, VW is pretty much alone in
producing lightweight diesels.  Most other diesel engines probably
weigh at least twice what that magnesium/aluminum engine you have now
weighs.  This would be problematic.

Regarding bigger, unless you refer to boring and stroking your current
engine, there is no larger air cooled engine except for the six
cylinder Porsche.  Don't even consider Continental or Lycoming
aircraft engines!