Go with the 7MGTE. It will have plenty of power for the light MK2 and is easy to mod. it is also the least costly. You will need to put your W58 tranny in it though. i found out the hard way that the R154 tranny that comes with the 7M is too big. You will have to use the W58 flywheel also.
What year is best? 89+ is best for electronics, better flowing head and better exhaust manifold to name a few. On the flipside the 6m crank from the 87-88 is is more advantagous as it can rev higher than the 89+. The 6m crank has fewer counter balances than the 7m hence the propensity for more rpms. Good luck in finding a nice 89+ donor, they are quite rare compared to the 87-88 models.
If I had to do it over again I'd use a 5m crank with some stiffer valve springs and a raised rev limiter.
The 7mgte swap is quite common and there are serveral nice pages devoted to this topic. Do some reading!
How about that, my 7mgte is from an '89 but with older style crank. It revs freely to 6500. BTW, it really don't matter which year you go with as long as you stay with same year electronics and wiring. This is true especially if you source out parts instead of using a donor car.
The 7MGTE flywheel has the dowel pin and bolt hole patterns for the pressure plate at a different angles with respect to each other compared to the 5/7MGE flywheels. I found this out with my aluminum flywheel. I had a GTE flyweel and the bolt holes wouldn't line up when it was on the dowel pins. That actual bolt hole pattern is the same though.
Technically you can use the R154 tranny... but like was said you need to "massage" the tranny tunnel. Its really a delicate procedure... you need a tool capable of REAL delicate adjustments... something along the order of a 15 pound sledge works nicely
I got the r158 in my car no problems, only thing is you have to get a drive shaft made and put 1 1/4 inch spacers between the tranny mount and frame. The tranny sits a little low but it dose fit. I had an auto mk2 and the 7m I got came with the tranny so I had to use it. I thought it was going to be hard but it was EZ. :lol: