One can definitely get serious power out of a diesel... I tried a powerbox in my TDI for a few hours... Simple $150 box turned the car from with "ho hum" acceleration into "holy crap!-throw-you-back-into-the-seat" little monster... and threw codes almost instantly... notto mention turned the power curve into an on-off switch... I took it off, reminding myself "this was not what I bought the car for..."
Was fun for a little while, though... made our pullied MCS feel slow...
Occasionally, I've have day-dreams of going whole-hog with mods: chip, turbo, exhaust, SMIC, injectors, and so on... along with swapping in a 6spd trans and clutch to handle it all... but then remember I'd still be saddled with a crappy Mk IV chassis...
Likewise, I had similar thought towards my '95 Cummins 12V (which is still the engine putting out the most HP in dyno comps)... but I'm in the "anti-soot" camp and refuse to drive a truck that spews out that kind of crap. It's bad enough that my TDI really needs an intake cleaning as if I really get on it, it'll leave a cloud of smoke in its wake.
Oddly enough, after 6 years of diesel ownership, and currently owning two (the TDI and the Cummins), I will probably sell both of them by the end of the year... after awhile, owning a diesel around here just becomes annoying...