Update from the update quoted below.
I know this thread is old but maybe someone cares about progress on this car?
We had another girl in March.  Mix two sub-3 year olds with the garage build and it's tough to fit in time to work on the VW.  I finally started getting motivated for it and making the time.
The trick for getting the motor in this car is to remove the passenger side valve cover.  The body has been tweaked and that valve cover rubs making it near impossible to install the motor.  Remove that one and it nearly slides right in.  
The clutch was not disengaging previously and I did end up buying a new shorter cable from some different year.  Maybe early '60s?  That's in and finally adjusted properly.  I can't go much tighter with it but I think that's OK since I think it needs to be loosened as the clutch wears.
I had actually dropped the motor to inspect the clutch disk and to make sure it was properly aligned to the pilot hole on the crankshaft.  That's where I figured out the hold-up for the motor install.
Then like an idiot I fragged the spark plug wires during the install when they got caught between the body and engine sheet metal.  New plug wires are installed now.  Then i connected the power to the wrong side of the coil and may have cooked my compufire points replacement module or the coil itself.  I've got a spare distributor with regular points that works OK but the timing isn't as stable.  If the coil itself is smoked I can borrow the one from my dad's motor that's in my other garage.  I should find out this evening.
TL;DR
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			I know this is a monster bump but it's finally installed in the car.  My spare time dropped to 0 a month after I started the thread when my little baby girl was born.  Now that she's about a year and a half old my spare time is returning a little.
Installing the motor was a huge fight.  Everything needed some convincing to get it to fit.  Then the muffler was exiting inside the fender so I cut and rewelded that.
Youtube video of the motor idling in the car and a small rev
The clutch is not disengaging completely so it's grind 'em when you find 'em in the trans.  I think my cable is too long.  I have temporarily stacked some washers on it and hopefully it'll be good to go at least temporarily.  But I've yet to try it again.  If the washers works for now I'll get a shorter cable.  It's not particularly difficult to install just a bit tedious.