Nah. That set screw in the rotor is just to keep the hub aligned with the holes in the rotor so you don't have to search when installing your lug bolts.
I had a noise similar to this on my Jetta. What had happened was the sleeve in the p/s control arm rear bushing was gone and the bushing in the control arm was hitting the bolt. It eventually broke and caused a whole load of more problems. But thats what I get for driving it and not fixing it till it broke. The only thing I've ever let go too, and it bit me in the arse.
Yes mk1 and mk2 drivers side axles only are interchangeable. The passenger side of an mk2 is about 1/2" too long for an mk1. However if needed, the cv's can be popped off the mk2 passenger axle and popped on to the mk1 passenger axle.
BUT the driver side one is a direct swap
Another thing to look at is to see if the press in bushings are still pressed into the control arms or if the rubber is completely ripped out of them.
Yes mk1 and mk2 drivers side axles only are interchangeable. The passenger side of an mk2 is about 1/2" too long for an mk1. However if needed, the cv's can be popped off the mk2 passenger axle and popped on to the mk1 passenger axle.
BUT the driver side one is a direct swap 
This right here has really made my day. I have millions of MKI Axles! Weeeeeee! I will check the control arm bushings as well. It's really too damn cold to do anything right now though. It's down to 40 degrees in my Garage. If I put the heater in there I can get it up to 50 degrees but it feels like a waste of electricity. Well I ain't got *** to do tomorrow so i'll try then.
I thought about not coming back to tell you this but it turned out my PASSENGER side wheel was loose

. I had a flat tire a few weeks back and had to change the tires around a bit. So I guess I forgot to re-torque the wheel. Embarrassing. I am dumb. But at least it was a really easy fix that I had all the tools for.

I hate it when people don't post how they fixed the problem... Hopefully the other suggestions in this thread can help someone with a real CAR problem and not just a BRAIN problem.
Thanks for the follow up. And the humble pie.