The news from the front is not super encouraging - my 2002 Tii owning brother in law and our friend who is a long time BMW mechanic came over to have a listen and we've come to the conclusion that the very disconcerting clanking noise sounds low in the block so we shut it down. I didn't get a video in time. It would not make the noise at idle but slightly off idle it kicks in and isn't pretty. We did it with the clutch in and out which made no difference. So the next step is to drop the oil pan gasket (I hate this job) and see if there is a horror show in the bottom half. My garage is not much bigger than the car so not a lot of room to do this.
We agree that the engine is likely coming out, so hopefully in a year or so I'll be back on the road as I don't have a lot of time on my hands yet I want to do this myself because I've always wanted to rebuild an engine. I'll continue this thread all the way to completion be it a total rebuild or otherwise. The cylinder head that I got from Don is in great shape so I won't have to mess with that. If I do a rebuild it's getting 10:1 pistons and anything else you all suggest (already has a Schrick cam). That's all for now, thanks for the suggestions!