I think it would be cheaper than you think to swap the engine.
I was actually referring to doing what Jonny has done to a BWA engine. So same as what is in a K03 GTi
A complete S3 engine went recently for a shade under £2k (complete with Loom Turbo etc)
It would be a straight swap from a vRS to the S3 engine, reflash the ECU to take into account it's got a bigger turbo and hey presto
They lot could be done for around £3-3.5k then sell the BWA engine for around £1200-1400 so about £2.5k overall
A K04 conversion for me at my level of tune would be Approx £2600 (i only need the turbo, injectors and associated gaskets etc) so the engine swap would work out about the same
So in theory i could do what jonny has done but i just doubt that the BWA engine would cope at the bottom end. As i said earlier their must be some reason VAG strengthened it in the first place for the K04 versions.
Carl