Timing on a 1.7L
 

27 BTDC @ 3500 vac adv disconnected & plugged. It just doesn't run well at all, even stalls at this setting. Turning dizzy counterclockwise (advances spark?) runs much better and it seems I can turn it quite a lot and it still runs, seemingly well, but I'm sure not good for engine. Am I getting the settings correct? Dwell is 46 degrees.

Timing MUST be at 27 BTDC for the fuel injection to work correctly. You might want to check that the distributor shaft bearings are still in good shape (is there any play in the shaft?).

Also, check that the points for the fuel injection are in good shape and that the valves are adjusted correctly.

Do you have a timing light with the advance knob on the back? Try setting it to 0 and checking the timing again.

Are you sure you're looking at the correct marking on the fan? A replacement fan might not have the right markings. You can verify TDC by using the notch on the flywheel, but you will need to get a mirror up on top of the transmission bellhousing to see when the notch is pointing upwards.

--DD

X2 what Jared and Dave said. As always when a "running" issue is addressed assure the basics are in acceptable conditions. I remember this engine as a tech at both VW dealers and independent shops and it was the only system the VW side of the house that utilized a timing spec other than at idle. Most vw air-cooled cars had an idle timing spec that was at about tdc to 5 degrees ATDC. This was to meet idle emission standards. If you can verify true TDC and there are a few ways to do this, set your idle timing to this with the retard hose connected and see if it idles. Verify vacuum chamber is ok. Verify at idle vacuum at the retard hose and zero vacuum at the advance hose. If you have verified true tdc and your car won't idle at a timing close to this then I believe you may have an issue that is not timing issue. Excessively advancing the timing only masks another issue