I'd like to say go for it, but I can't prove that it will be any good! Sure it will be powerful, and the weight will be more forward, but it will also be taller. I would think maybe my next conversion will be STi with an Audi tranny, really mid-engine. Even the 1.8t with an Audi tranny would be a great option. It will involve a lot more cutting of the pan, but much less of the body. You'd need to figure out a new rear suspension. I've been eyeing these guys' rear end(no, I'm not gay)
http://www.sakermotorsports.com/gall...ry_theCar.html
They use a Suby mid-engine and they've figured out the suspension and GET THIS, it's the right width for the bug as well. OK, you may have to use wider fenders, but still.
I'm not done with mine, and if it works out great, I might stick with it for a long, long time, but if it's just OK, that will be my next move. Heck, I might even go with an Audi 2.7t!
If you want to use your 1.8t, you'll probably have to do the same thing I did, or hook it up to an Audi tranny and build your own rear suspension. I didn't have the stomach for it at the time, so I figured I stick with what VW did, but in the end, the front suspension was designed for a FWD car, and that geometry may come back to bite me in the butt. If you could make the Saker guys talk or get parts from them, you'd be able to build yourself some sweet rear suspension. It may be OK, but like I said, I really don't know how it will work out yet.
Jason