Justin: I'm not 100% sure if there will be cylinder deformity or cracking from overboring that much. I will find out. Subtract the 1.6L block's original wall thickness by ~3.0mm between cylinders. The diameter difference between the max. overbore OEM 1.6L piston (0.040") and the stock OEM 1.9L piston is 1.984mm.
HP: 1.9 pistons in a 1.6 block and retaining the 1.6's 86.5mm [crank] stroke should result in ~1.7L displacement. If you absolutely want a little less displacement than that then use a crank from a 1.5L.
Assuming that you don't want 1.9L pistons: Do you realize the complexity of TDI pistons? It will be very costly to reproduce them. However, you could possibly use pistons from a 1.2L PD TDI. They have a ~76.5mm bore that will slide in your 1.6L block nicely. However, the 1.2L TDI has three cylinders so you'd have to source two of these engines to get at least four used pistons.. or buy new ($$$).
Yes, you can use PD TDI pistons in a VE TDI setup. Someone has already done it with no adverse effects (and ~220bhp). I know very little about 1.2 TDIs though.
It's still likely easier to use NA spec 1.9L (79.5mm) TDI pistons and finding a US-based machinist that can make custom rods.
Use TDI injectors. The TDI injectors have multiple holes whereas the IDI injector is pintle style with one hole pointing straight down. The TDI injectors (style and placement) and pistons are what really sets them apart from IDIs. The fuel ports at the very top of the IDI and TDI injectors are the same for the metal fuel lines, so you may be able to connect an IDI fuel injector pump to your TDI injectors with minimal or no modifications to the fuel lines.
The reduced stroke will improve rev capability, but do you need that in a limited RPM TDI? You'll benefit more from accepting a larger displacement. According to
this document:
[IDI] combustion is faster and more complete than with DI systems, with more of the fuel being consumed even with lower amounts of air per cycle (lower A/F ratio) at the same smoke level. Since no swirl is required in the main chamber, high-efficiency directed intake ports can be used instead of the helical ports employed by DI engines, and more air is processed to provide higher volumetric efficiency with smoke-limited A/F ratios of less than 20:1. The combination of higher volumetric efficiency, reduced port-pumping losses, higher engine speed and higher combustion efficiency at lower A/F ratios produce higher power; typically, 10-15% more power at the shaft for similar-displacement engines.
The TDIs are however ~10-15% more fuel efficient and that seems to be the biggest strength of DI over IDI. If this is what you're after, then by all means go for it. I'd love to see a 1.6L or 1.7L hybrid TDI
However, considering the average cost of custom rods alone ($900 USD), you're probably better off searching for a decent used or rebuildable 1.9L TDI longblock.
Don't forget to factor in the cost of modifying a fuel injection pump for enough pressure for optimal DI.