As other people have stated, before you go spending your cash on upgrades, make sure everything is working well.

If it were me:
Scan for codes (the check engine light doesn't always come up if something is wrong)
Compression test
Any upcoming maintenance (you're coming due for your second timing belt $$$)

If you're still on your original DV, replace it. The internals are rubber and prone to leaks at higher mileage.

Its going to be a bit hard for him to take a stock car and do an elim setup for near $1k. Yes you can find a used elim kit for that price, but you have to factor in the supporting mods too, ya dig? BTW, hows your project coming along? Still at the shop?
Truth.
Back from the dead? Havent seen your name in awhile. Where in Jerz are you now?

Dead? Nah, just resting my eyes. Still running around the Trenton area.

Cool, Im in Point Pleasant Beach. Ever get to GTG's? I've been meaning to get to those Upstate New York ones for awhile. Maybe this Spring.

The turbo only breaks in the 1.8T's because of sediment that builds up in the oil pan, which a simple oil change cannot fix. I would recommend having the oil pan dropped (will need a new oil pan gasket) to remove built up sediment. Also get a mechanic to check over everything, which shouldnt cost a lot but be sure to visit a mechanic who knows about the car, not just the local mechanic who only works on more popular cars. I would reccomend chipping, a new diverter valve as people have said, and just spend the rest on aesthetic changes.
I am currently having my ECU chipped by APR (goapr.com)

Hope this helps

Here is what I did: my car (1998 A4 B5 AEB) came with a mystery "TAP STAGE 2 - +50 HP - 12 PSI" chip. It had 136k on it when I noticed rattling sound and not so impressive power.

Turned out the wastegate flapper was decaying. After 'ebay china turbo' (luckily, junked before putting the effort in of installing it), friends hooked me up with TurboConcepts nearby.

Nick gave me 2 options: rebuilt my K03 to as new, or for couple hundred more a custom turbo to match my desired characteristic (good spool, mid range power, no need for peak power at astronomical RPM). I got the custom with compressor better than K04-015, turbine a bit limited (using my K03 core), but matching the characteristic. I later (when the front end was off anyway for the timing belt job) got an ebay FMIC ($300) and a test pipe. I am know getting 18.5 psi at 4000 rpm, stock injectors. Total: $1,000 (using my broken K03 core, but had the 'mysteri chip' already.

With the miles you have, rebuilding your turbo is a good investment, so you are basically in the same situation I was.

If timing belt change has been a while, do it now and install the FMIC, and order the test pipe. The stock ECU may still hold you back, but now you are ready to chip the car. I would love to see what the GIAC PC16 with injectors would do on my setup.

My next step (I decided NOT to go big turbo on the car) is to de-bottleneck the turbine side by replacing my custom K03/K04 with a K04 housing (to get a larger turbine in) but pretty much leave the compressor. This should extend my 18.5 psi to 6000 rpm (currently, it drops to 10 psi at 6000). I would put my current turbo (less than 10k, naturally 5W Mobile 1) up for sale (for the price of a rebuild).

If your turbo is holding up, you may do test pipe first, chipping second (not sure how the various stages offered run on stock turbo; select your disired chip/tune, then ask the tuner), then turbo.

Or: test pipe, turbo, FMIC (mine runs just fine with stock ECU), then chip/tune and fuel.

Next on your list should then be a clutch upgrade (I went with Southbend Stage 3; plenty of power capacity, stock drive-ability).

I'd do what Bacon said, then what everyone else said. Starting with chip and exhaust and getting more complicated from there.

true that...my car is going to be done next week(fingers crossed)

They are never done when expected lol, whether its at a shop or your doing it yourself. I cant wait to see the outcome tho. I like the build and I'm always a fan of Precision turbos. Garrett may be a quality product, but they are behind the times. I believe they FINALLY just recently came out with a billet wheel option.

yea I cant wait only draw back was the brand new apr snub broke when they put it in