Nice updates
My rack will need replacing at some point as it knocks also, so I'll probably do the same as yours!
LSDs are hard to get right on FWD. They're great in the dry but in the wet, they can be a hinderance as you don't want both wheels spinning mid corner! I reckon the Wavetrac with the MK6 XDS ABS ECU is probably the best every day package. The Wavetrac combines advantages of torque biasing and plate diffs. Normal ATB diffs like Quaife and Peloquins still need a minimum of 5% traction on one wheel, otherwise one wheel will still spin like an open diff. They're both useless in snow and ice. The Wavetrac offers a bit of traction in zero load conditions, but will never match a full plate diff. Plate diffs can be a pain in the neck in a road car. Noisy and require maintenance to replace worn plates, but a road spec Gripper diff is apparently the best of them.
Anyway, XDS + Wavetrac is the way forward
The MK5's XDS only works up 40ish mph and is easily overwhelmed by remap/BT torque. The MK6 XDS is full time at any speed (iirc) and is way more effective.