Things to look for on the 1985 donor trans:
I've bought, sold and used several transmissions over the years. Since most come out of cars that are not running, I have an external check I run on them before I buy them. So far, I haven't gotten a bad one. Here's what I look for:
1) Input shaft play and leaking. Any play there, and I walk away.
2) Output flange play. If the flanges move from side to side (up/down), or in and out, I walk away.
3) Gear selector movement. If it's hard to shift into any gears while actuating the shift lever (when disconnected from the linkage), I'll pass.
This is especially important when checking the movement from 1st to 2nd. If it's hard to move from 1st to find second, it usually means the syncros for 2nd are really bad. Now, just about all VW transmissions will have some drag going into 2nd gear in extremely cold temps (like 20 F and below), unless they've been completely rebuilt. Sometimes you get really lucky and they don't, but it's my experience that they all have that to some degree. Thinner lube helps (like GM's Syncromesh).
I also check the movement into 5th. If it's hard to get into 5th, it means the trans was run low on fluid, and it's killed the 5th gear synchro, and probably done some heat damage to the gears.
4) Excessive leaking. This can mean overheated, or cracks in the case. This can also mean 5th may be bad. Some leaking is OK and normal for a trans with 100-250k on it, but you don't want to see areas washed clean by leaking action around the drive flanges, or erriely clean (or excessively greasy) bell-housings.
5) reverse noise. If I put the trans into reverse, then spin the input shaft, and it makes excessive noise, I'll pass on the trans. Most VW 020 transmissions will make a unique sound when in reverse. You can clearly hear the gears working, but if that sound is too loud, or different from what it should sound like, I won't use/buy/sell the trans.
6)Finally, I put the trans into each gear, and spin the input shaft to make sure none of the gears make noise when power is applied to the input. This will tell me if the gears are worn or broken.
If a transmission passes all those tests, then I'll get it/use it/sell it. I've sold/used a few like that and have had no issues. In fact, my 1981 Rabbit has a j-yard trans that I bought 'cold' with no warranty using all those tests, and it's shifting just fine in low 30 degree temps down here in Tennessee.