If you do choose to go with the type 4 VW engine (as in the 914/4 and 912) I would suggest a 2.4ltr engine. My 914 used to be a 4 cylinder and I've gone through many iterations of these engines and within the triangle of power/price/performance the 2.4 came out tops. Simply it is a 2.0ltr with 102mm pistons. To get bigger than that you either have to stroke it out (using a crank from a Rabbit) or go to 103 or 105mm p&c's (which have been known to go oval fast).

I ran my 2.4 with dual 44 webber carbs, a 3/4's cam, lightweight valves from a 350 chevy race engine and out through a very very good set of headers and into a phase9 exhaust. It made a pretty consistent 180bhp and over 200lb/ft of torque. The 2.5 made about 25 more horsepower but was 3 times more temperamental and lasted about half as long. Knowing what I know now about it, I would not have built the 2.5 (but it made me go to a 6 cylinder, so it's not all bad...)

A 550 replica at around 1,500lbs with 180 bhp will be a pleasantly fast car. Boxter S fast though, not Turbo fast.