For those who have done swaps, I've been told that all you have to do is just ram the nozzle in as hard as you can and it will eventually open up and work ok. I tried that, unsuccessfully. The only thing I did manage is to dis-lodge the pastic funnel thingy in there. Should I attempt to knock this thing all the way though?
here's what it looks like now.

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i would just um take out the filler neck and then take all that *** out of it
How do you take out the filler neck? Isnt it and the tank one big molded piece?
i'm not sure since you car is mk2, but on my car when you pull the passenger side wheel off, you can look up in and then take the inner fender plastic shield *** out and then can get up in there to remove *** up in there
As far as I know it's all one peice. I just used some long needle nose vice grips to grab onto that thing and rip it out on my MK3. It was tough on my '94 (it came out in many peices) but when I did it on a '96 the whole thing came out as one peice. I think there was a revision there somewhere which made this modification easier.
I took a piece of 3/4" metal pipe, heated it with a propane torch and melted the hole bigger. (This will help when using the diesel car nozzle but won't fit the big trucker nozzle like the Rabbit gasser to diesel conversion does.)
Then grabbed the little metal "nozzlegrabber" with a pair of needle noses and ripped it out. That nozzle grabber might be what's holding your plastic in place and it pulled out nicely when I grabbed it.
So maybe there is some truth to the rumor that you can just shove the plastic inward. Of course then it's in you tank or fill line but that probably won't cause trouble.
Well I have no problem going in there with a big hammer and chisel and knocking that thing inside the tank. I dont care if it sits in the bottom of the tank for all eterntity. I just wanted to make sure it was possible to do that and not have the thing lodged way down in the filler neck where I cant put any fuel in at all and then I'm screwed.
I got it. Using a big hammer, a chisel, and a pair of needle nose pliers I was able to beat that thing into submission and rip it out and throw it on the floor. Took 5 minutes tops. I doubt I'll have a problem fitting any fuel filler nozzle in there now.