There are valve seals and piston rings. The failure of either will cause heavy oil consumption and smoke. The failure of rings involves complete disassembly of the bottem end of the engine. A wet/dry compression test can differentiate between worn piston rings or valve seals.

If the ignition system was compromised by the melting wires then the unburned fuel would wash the oil off the cylinder bores and would fairly quickly cause ring wear. In all probability, a rebuild is the only fix. A temporary band aid would be to try a heavy weight 20w50 oil and see if that reduces the smoking to an acceptable level-but it won't do the rest of the e ngine any good at all.

Quite possibly. But it should have caused a noticeable fault at the time; it wouldn't be insidious.

Car has been with VW dealer for a day and half now, they did the compressions test and said that the reading from the cylinders arereally good for a car of this age.

so that rules out the piston rings thank god....but they are struggling to find anything wrong with the car...even though there is oil in the spark plugs and blue smoke comin out of the exhuast when it gets hot.

Update....HELP! the car has now been at a VW Dealership for 4 weeks now, after the compressions test came back good they said the isssue must be that one of the valvestem seals is faulty. So i they went ahead with the job to replace the faulty seal. A 2 day job has turned into four weeks. They have now replaced the Steam seals, fitted a new head gasket,head bolt, Exhaust Valve, Inlet Valve, Cam Cover gasket, Down Pipe Gasket, Exhaust Gasket, Cambelt, Oil Coolant, Inlet gasket. The engne has been sent away twice for repair as they first time it came back the problem still existed, so on advise from VW germany they sent the engine of to be repaired again....and again after all this work the original problem still persists....but now the car smokes all of the time when it gets hot! VW have said no other VW has ever had this problem....and i may need a new engine. Next week one of the VW techs is going to strip the engine as a personal project to find the problem...they think its a faulty cylinder. The tech at VW admtted to me that they have been guessing the problem all along and are still guessing! Dont really know to do at this stage, i have nothing to lose leaving the car with them...they arent going to charge me for any of the work or parts and they given me a hire car for free...i just want to know what the problem is be? and fix it as the engine has only done 70K can anyone one suggest what the issue might be i dont see it being a Cylinder?

Did you see this post :-

http://www.honestjohn.co.uk/forum/post/index.htm?t=93798

Perhaps the 1.6 has a similar breather arrangement.

Would be a bit embarassing for the VW garage if that were the cause.