Nice landy, if you want to increase the height, stick some higher lift parabolic springs on instead of the standard leaf springs, the parabolics are just modern, nicer versions of leafs.
As for a V8, I once thought of doing that, but since my series 3 is a daily drive (not daily, but my only car) and I'm a poor student, I couldn't possibly afford the insurance or petrol, so I'm stick a 200 TDI in instead, but a V8 ain't too hard.
I'm sure someone else will tell you that though.
Enjoy your landy, is it your only car?