Ofcourse a M5 is also quite fabulous, but S8 rules.

I just saw one the other day on the road and I was all drooling over my steering wheel...
About putting a W8 in a Passat, you gotta realize, it's just a first step for VW in it's process of moving up the luxury hierarchy. It's kinda a stop-gap model before the VW D1 (Phateon) hits the market next year. Also, the W8 acts like a guinea pig. While the W8 by itself is a cool engine, it is purposely under-rated and also a crappy auto-transmission lets it down. But I gather VW is going to improve the gearing to make it perform much better.
Also the W8 does not compete with the likes of sporty 330 or the S4. It's more as a competition for the 530s, non-sporty E-classe MBs, Jaguar S-type, Infiniti Q, Acura RL etc. More luxury than sport. I am sure in it's next iteration of the Passat, it's gonna really shine. Right now VW is just taking baby steps, so as not to tread on anybody (including Audi) before it gains speed late next year and 2003.
BTW, as a side note the next S4 (slated for next year) is gonna have a V8 putting out maybe some 340+ HP. Gotta cream that new M3.
-j