Adding a 1.9 head to a 1.6 block will lower compression, which may be undesirable for NA, but it's ideal for FI (turbo). As far as I know there were two documented cases of 1.6/1.9 cold start difficulties - in my case my compression was much lower than usual due to a grinded head deck, but the engine still started up after 1 or 2 cranks in -5 degree Celsius temperatures with a small battery and small gasser electric starter. It idled roughly for the first 15-30 secs if I remember correctly.
The other case was a 1.9 head with a bent valve, which explained the poor starting. Basically a bad 1.9 head was installed in his car.
A standard 1.9 head on a 1.6 block shouldn't be that bad for cold starts.. that's just an assumption though.
Diesels and turbos are made for each other. The combination of a ported 1.9 head, turbo, and a Giles pump will haul ass compared to NA. You'll probably want a turbo diesel block for longevity though, so basically you might be building another diesel engine: 1.6TD block + 1.9 head.
A tuned NA diesel can still be fun to drive. With a Giles pump, some airflow mods, biodiesel, and veggie oil, I think you'll be happy. Saving at least 75% in monthly fuel costs ROCKS. No need to worry about turbo unless you have some more $$ to spend.
After driving a highly tuned 1.6/1.9 TD and a couple 200whp+ TDIs, I am currently thinking of getting a mint MK1 Rabbit or MK2 Golf and installing a 1.6 NA engine with a veggie oil setup like you said. With a Giles pump and considerable airflow upgrades I'll still enjoy it. I can expect at least 400,000km out of the engine if properly maintained. I love the simplicity.
I spend at least 2 hours a day driving and 95% of the time the traffic is congested, so I don't always need rippin' performance. An old stock 1.6 NA does 140km/h no problem on the highway. I'll have a second car later for real performance (likely a revival of my 1.6/1.9 TD project).
Oh, I'm also thinking of a nitrous/pump LDA setup for the NA :roll: but I digress.
www.frybrid.com has one of the top veggie oil kits. I'm not implying that you buy their kit (I'm not affiliated with them either), but they have a message board that has very detailed veggie oil diagrams depicting how to control heat of veggie oil optimally and how to purge it quickly, etc.