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Sorry to jump in here - I can't add anything new to the problems you are having, but can tell you a bit about the crankcase!
That is not an industrial engine crankcase - it is a Vanagon / T25 "CT" or "CZ" case - 1600 / 50hp aircooled from 05/79-12/82. Cooling fan was on the end of the crankshaft like a type3. Originally had hydraulic cam followers same as the 2.0 CU & waterboxers. If yours is now solid lifters then you will have had to use 2.0 CJ ones or bush the case & fit stock T1 lifters. It used Waterboxer pushrod tubes. Other features of the block are that it has the oil cooler mount closer to the distributor. Cooler lies flat like a type3 but on top of a large ally spacer block.
This engine was generally not reliable as it had marginal cooling in a heavy vehicle, so suffered from overheating, but it was a useful development that led to the waterboxer engine. It is an OK engine if you sort the cooling out, but not one i would do as a performance unit with original CT cooling.
Not many sold in USA - most sold in Europe and then it was only the bottom of the range - most went for the 2.0 CU engine.
Regards
Moog
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(o\ /o) '73 GT Beetle with 2.1 WBX (owned since 1990)
(o\ /o) '74 Jeans Beetle (owned since 1986)
(o\ /o) '67 Zenith Blue Beetle (needs lots of work..)
'02 Passat Sport Diseasel Estate ("Das Boot")
'05 Seat Leon FR, chipped (Mrs Moog's toy really...)
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