There was a turbodiesel option for the Rabbit though more common on Jettas.

Whether you soup up the 300D or Rabbit, get an engine and transmission from a donor car and replace as a unit. Techincal issues aside, it's easier to do it that way. I'd stick to a MB turbodiesel through 1983. The US (and maybe Canada) got some electronics in 1984 that might complicate the swap.

Sixto
95 S420
91 300SE
87 300SDL
83 300SD