I think I'm going about this the wrong way. Looking at the Idiot's Guide, #1 should be firing when the rotor is pointing at about 5:00, looking from the rear. It is pointing thus, so I think the body of the dist. is turned the wrong way and just needs to be loosened and turned 180 deg. If the gear were in backwards, #1 would fire when the rotor is pointing at about 11:00, right?
Then, obviously, reset the timing.

Sorry if I jacked the thread here. Thanks for the help!

Look at the dist as you would in a Bug . On the norm the notch would be about 2:00 to 5:00 o'clock depending on the type of dist. used. You may have a dist in your FV that has equal lobes and no retard.(old FV trick). You can't just turn the dist 180 deg without doing a wire dance. Really there is no excuse to having the gear out of time. Most of the time it's during a re-build that this happens. This is the reason I have said a thousand times , put the gear/dist in the case FIRST. Set the body notch and rotor somewhere around 2:00-5:00 lock her down. Install the crank by holding # 1 rod on top of stroke, #2 rod on bottom of stroke . The crank gear will engage the dist. drive gear . Amazing !! You are now in static time. Putting the gear in after the case is together can be a lot of fun. Watch out about dropping the 2 washers . They will fall right on the cam gear wrecking it. How many times have you looked in the engine comp. and see the vac. unit jammed up against the oil pressure switch or almost into the fan belt or fuel pump. I don't care if the dist is 33 1/3, 45 or 78 degs. out  fix it right at least for the next mech. that has to deal with this , spending time before it dawn's on him what the hell is going on. I have seen a lot of good VW guy's get caught with this problem.

AMEN David!  The only real "FIX" is to put the distributor drive shaft in right to start with.  Everything else is just a patch.  There is a tool from pulling the distributor drive shaft with the engine assembled, but considering the risk of dropping the washers when you pull it out, I never try this with a running engine.  I'll just do what I have to do to compensate for the engine builder's screw up and wait till rebuild time to really "fix" it.

It will make you sweat. Just try to get those washers out if you drop them. You don't dare to even turning the engine by hand until you do.  Not many people ever see the brass crank gear after trying to get the dist. gear installed. Some people will force,beat and bang the dist. drive gear in. Nothing like a pile of brass chips,parts of brass shavings, busted teeth down inside the case trying to get through the oil galleries .  You send some people to school, buy them books but they still will eat the pages.

Wow. Can you still think? I would have blown my brains by now. What to fix first would have had me beside myself. Anthony you have a lot of patience.

At times like this is when you grab all the wiring and rip it out and start over using proper "stuff" correctly.

You guessed it-that's the next step!
I forgot to mention the red plastic boat fuel tank strapped to the inner rear fender. Actually not the worst idea, considering how cruddy the actual fuel tank was.

Anthony, I'm glad you got your problem worked out. I feel like I'm learning a lot just by reading through everyone troubleshoot their problems. I think I am finally understanding how these distributors work. I think I'll go with Zen and The Godfather's suggestion to use the doghouse cooler no matter what I do. I would be interested in which type of distributor everyone has found to be the most reliable on 1600cc single port engines: a vacuum advance or a mechanical advance?  Although I doubt anyone else around the forum is as clueless as me, I found a couple of links that helped me understand what happens in the distributor. Again, thanks for all the feedback.

http://auto.howstuffworks.com/ignition-system4.htm

and

So far it seems I'll need the following parts (let me know if I am missing anything);
Fan Shroud       VWP# 113-119-025
35mm Fan         VWP# 113-119-031                                            
Doghouse cooler VWP# 113-117-021
Doghouse mount VWP# 113-117-301
Upper Duct        VWP# 113-119-431
Lower Duct        VWP# 113-119-419
Cooler Seal Kit    VWP# 111-198-029
Hoover Bit          VWP# 113-117-323


Yeah, I feel like I just can't ignore Zen and The Godfather's advice. Also, this web site seems to back up what they said:

http://www.vw-resource.com/oil_cooler.html

I'll definitely order the cooler ($40), mount ($20). upper duct ($10), lower duct ($10) and a seal kit ($3) from California Import Parts http://www2.cip1.com/ on Sunday. That way I can get in on their 20% off sale that ends on the 30th.  I just might try to pick up a doghouse fan and fan shroud at a show or swap meet since we've got a few more festivals left this summer.

The hoover bit seems harder to come by. I can't seem to find a parts house online that carries them. Though, I've seen a few hoover bits on the Samba for around $20. That seems pricey though. Worst case scenario I guess I could cut one out of some metal flashing with some tin snips using this guys sketch:

http://www.type2.com/rvanness/sealfram.htm

This seems like a lot of extra effort and bread but if it buys a little more life and dependability out of the engine I guess it's worth it.

Don't buy the upper and lower duct. I even have a few oil cooler mounts. I'll have to check on the bigger fan. And I don't think I have a hoover bit.

 As for Sunday... That's the first. Get your order in today or tomorrow!