Well where to start
Basily the engine is renound for failure. But to get a 'good' one (like mine
) the things you need to check are
1) Does it start well from COLD - It will need 20-30seconds of preheat which is normal, and a 'large' puff of white smoke is normal after start up. When its turning over before it fires all the compressions shoudl sound the same. If it speeds up slightly/sounds different (part from firing!) when turning over on every 4th turn of the engine etc then one of the cylinders may be lacking compression
2) it should cruse at just over 70mph on the flat (but will take some time to get there)
3) There should not be too much back pressure on the engine (a sign of ring ware/cracked pistons etc) - remove the oil filler while its running and put your hand over the hole (its going to get oilly) but there should not be a massive buildp of pressure under your hand.
4) Check the hoze that goes from the oil filler to the air filter box - if its still attached to the air fillter then this is a very good sign as most have had to have had this removed as back pressure causes the oil to blow out into the air filter. If it is off and 3 is good then don't worry its been removed as it still happens a bit in 'good' engines
5) Take a good look around the eninge - they all drip a bit of oil which is normal - and make sure its been looked after.
6) Check the cooland and oil levels as well - any seller with any sence will top these up before you come around but check it anyway.
7) Once its running it should stop smoking after a max of about 1-2 mins, and the puff/plume shoudl stop once the engine has been reved up for the first time/ within a few seconds when running on tickover
8) When driving it it shoudl rev up happley, and not come up against an artifical limit which is a sign of poor fuel/air flow. When you come off the power it should settle down to tick over happily without any miss firing/banking around etc
Also be warned that there are a lot of bad/moderate examples of this engine out there, and only a few good ones left as they were not good engines from the start.
Would suggest you test drive a 200tdi as well if your planning on doing long runs on motorways etc