It looks like you have most of the pieces worked out, but you'll also need a AC specific shallow glovebox and lower dash trim as the ac evaporator housing is much larger than the stock mk2 one.
The reason your mechanic has said the bearing has gone is because it's the root cause: The seal in the box has failed because the bearing is allowing the shaft to move up and down, which has unevenly worn the seal.
As for gearbox refurbishments, I can't recommend Gas N Gears highly enough, the guy has been in the VW world for 20+ years and has done around four boxes for me, all faultless. Not cheap, but great workmanship.
But I can understand your want to swap the engine, depending on how far you want to go, you could source a 2.0 bottom end, get that refreshed and then spend a couple of weekends swapping your head over and putting it in.
Though I'd still get a leak down done on your engine first, no point in putting a potentially worn head on a shiny new block.
Problem is nowadays, any engine you swap in is going to be over 30 and feel almost just as tired.
Personally, I'd use the money getting your 1.8 rebuilt. As long as the bores are good, a hone, fresh set of piston rings and a handful of other refresh bits should see it back to it's best.
First, you should get someone to do a leak down test. You may find you've got something like worn stem seals/guides and can get away with just a head rebuild.
I know I'm probably the last person to tell you not to swap out the engine, but if you want to get best bang for your buck, you may be better off keeping what you have.
