Bought an 83 rabbit without test driving it (I know...), anyway it ran good sitting there. The car runs and drives, but cannot get up to 60 on the highway without a downhill slope or tailwind. I'm thinking the head has problems. My question is, can the head be redone...or am I going to find cracking between valves like I've seen posted in other forums. I've got $1500 in this car and I'd like to make it run right or try to recoup my money.
BTW...haven't run any biodiesel in it yet.

Have you changed all the filters? Fuel and air.

perhaps, run some diesel purge thru it? Do you think it might be "fuel starvation" ? Have you change the air and fuel filters?

If none of that helps, maybe buy a Mercedes 300D.

Let us know how it turns out.

Check fuel filter,check the cable running to the IP (injector pump)to make sure it is pulling the IP full open when floored. If it is the head you will be losing antifreeze. If so you could try new head gasket 9 times out of ten these are cracked between the valves, you can get an off the shelf replacement with warrenty for 400.

Unfortunately I cannot offer any hopeful suggestions. I once owned a 1981 Rabbit diesel. It was a thoroughly miserable experience! When the engine was "good" it was my little Rolls Kin-ardly. That means it rolls down one hill and kin ardly get up the next. No joke, I was once passed on a steep hill in the Catskills by a loaded logging truck!!!! Then it jumped time on me and blew the engine. Long story longer, the replacement motor I got was even worse. the diagnosis was lack of compression in two of the four cylinders. You should get a compression test and make your decision accordingly.

The most informative test(s) is a compression test, and a leak-down test. They will tell you if the cylinders/rings are worn out or ok, as well as an indication of valve wear. VW diesels have tough valves, and yours may simply need adjusting. That would be nice.

Another useful test test is to check for combustion gas in the radiator (a good mechanic will have the test gizmo). This will detect a leaking headgasket, even before it blows.

If those things all check out, then the problem is fuel, which means injector pump, or timing, or injectors. Other folks have already mentioned filters.

Rabbits are famous for blowing head gaskets, especially when not properly overhauled (always buy new headbolts, and retorque per the shop manual, not per the generic instructions that came with the "no retorque" head gasket).

I know of one (and only one) VW owner who didn't know the timing belt was supposed to be replaced every so often (90K miles?). He didn't even know his Rabbit HAD a timing belt, with over 300K miles on it. Some people are just lucky. I wish I was one of them.

It also occurs to me that a vacuum gage on the IP inlet would help you diagnose the problem, even though your car hasn't been converted to SVO. It would rule out fuel starvation, or confirm it.
Cheers,
JohnO

Could always check here:http://www.vwdieselparts.com/forum/viewforum.php?f=8

if you don't figure it out. GREAT site...VW gurus.