Just to update,
I determined it was the head gasket, that was causing the car to over heat. After filling the car with coolant and letting it sit over night (after running the car) the resevior would be empty. There's not too many places for it to go and the floor was dry, so it was leaking into the engine some place.
So, I pulled the head and sure enough there was as little bit of coolant in a couple of the cylinders. The head was cracked between the vavle seats so off the the machine shop I went to get it pressure tested and checked for warping.
The good new it passed the leak test. The bad news it was warped and the top was twisted.

To repair the shop wanted to strip down the head heat it up and twist it back to straight and the mill the warp out and then rebuild the head. A cost of $500 plus parts. :shock:
My options :
New head from the VW Dealer $1580
Use from a wrecker $400 says it won't leak but won't warrantee for warping or cracking...( so at least another $80 pressure test and warp check)
Or a exchange Head for $565
Talk about a rock and a hard place.
After talking to a few people I decided to go for the exchange head, rebuilt, and straight.
Oh well I only paid $1600 for the car and it has only 170K KM.