swagboy, I would argue that if you are willing to get your hands dirty, and you know that the new beetle is a pain to work on, and expensive in much more ways than a comparable jetta or golf, then go ahead and buy it if you think you can get it cheap. if you have diesel engine experience, it sounds like this could be your ticket into knowing your car intimately.
you could probalby pick up a used engine cheap, or if you want to tear into the old one and find out what is wrong, im with the others on this, you probably only need to put a couple or 3 thou into it, so maybe for 5K total, you could have a decent start into tdis.
that also having been said, I know the prices for used TDIs out on your side of the continent is way way less than mine (western canada) so, do some price checks too and see if you can find a decent running one, well maintained, etc for about the same price. if you can, then walk away from this, if you cant, then this might be the deal for you, IF you are willing to put some time and $$$ into it.
maybe its worth the ~150-200 to get it towed into a shop and inspected?
PS totally low ball him, if he accepts, youre laughing. if not, he may soon come around later.