I can see the issue.
One one hand you have a daily driver that is a bit rough, but in working order. Purchase price was reasonable at the time but not within Challenge range. On the other hand you have a cosmetically sound body and suspension but an engine that will never run again. Assuming you took the good engine from the running car and moved it to the cosmetically sound car, the "effective value" increases for one and decreases for the other. By how much is the real question. You also have to consider the actual current value of the running car since it had been driven and time has passed which should further decrease the residual value. It would stand to reason the original daily driver could easily be valued at $1600 if it did not have a working engine because you have set the precedent with the recent purchase. Also, the the daily driver is 2 years older, has fewer options and is higher mileage technically making it's value even lower.
I'm not the expert, but it would be much easier IMHO to value the '99 at $1600 then the '01 if both didn't have working engines. I know that sounds like a bunch of funny business paperwork wise but seems like a workable solution to me. Said another way, if you were reversing the scenario, then you would get considerable push back from the rules committee. So, it makes sense to me and everybody wins but I'm not the guy in charge. Regardless, please carry on. I'd really like to see the Audi swap!