What you are proposing is actually illegal across the USA in it's entirety. It's a federal law, you can go the other direction (newer engine into older car) but not backwards, as a 1982 engine would not likely meet the 1998 emissions standards of the vehicle it's going into. Now, enforcement of this matter seems to be left up to the individual states, and in some cases, individual counties or cities, meaning this isn't enforced in many areas, but keep in mind it's something that could theoretically land you in trouble even if you're lucky to live in an area with no emissions testing or vehicle inspections to speak of.
The 1.6 diesel is going to be underpowered (they're underpowered in their original applications) in a 1990s Passat that weights 3,100 lbs compared to the 1,900 lbs that VW golf came in, over half a ton more! I think you would have a hard time meeting highway speeds unless the engine is seriously modified. So while the engine meets the chassis in the right places on cars made up to 1999, it isn't practical.
I have a 1992 Jetta GLI (same as a GTI) with a 1.6 turbo diesel in it along with some other upgrades and custom interior work. The GTI/GLI models had all the cool upgrades and my car feels sufficiently modern and comfortable while still having the simple, economical 1.6 diesel, which I think is what you're looking for... so I would go that route, a nicer mk2 (such 1992 was the last year) chassis, the diesels were usually stripped down basic models. It does lack some things like airbags however... but is only a bit heavier (around 250 lbs) than the mk1 models were, and I think a bit safer and more comfortable.