Change the plugs and leads if it still doing it get the error codes checked. A R Reg VR has a coil pack insted of a distributer check the coil pack for cracks that damp could get in.
MK4 head gasket will give you higher compression not good if you want to go for forced induction inthe future. you might as well put a Lightened Flywheel in as well
http://www.jdengineering.nl/ are in Holland they do good things with G60's and 1.8T engines. may be to far from the Hague for a service but they may recomend some where
Would have needed a new/reground crank, con-rod plus all the other bits needed for a rebuild. Midland VW looked at it and at the time had a good 2.9 engin they fitted insted of repairing the old one.
The hose goes from the rad to thermostate housing and the smaller hose from the T goes to the expansion and the throttle body. The thermostate housing can leak and could cover the coil pack with water
you could try to get police to contact the last registered keeper for any detailes of who it was sold to. But that would mean them doing some work. or give you the detailes so you can was a nice clean highline