I paid 8000 for my 92tsi (two years ago!!). It had over 200,000km on it. But the interior and exterior was in great shape (I saw it and I had to have it). But I got the 6 bolt engine (better than 7 bolt) and the 4 bolt rear (better than 3 bolt). And there is no rust on it.
If you are planning on performance enhancements, the high mileage may not be too big an issue. You will be replacing the turbo with a bigger one, right? Anyway, with a car over 200,000kms, plan on having to do a rebuild within the year.
My car now has 249,500 on it, and I am building a motor to put in next spring.
That price is too high. If its a 7 bolt engine, its probably way too high.... Utlimately, its worth what you are willing to pay. Nice 6 bolt 92s (early 92- before April 1st/92) are getting quite rare.....
If you love the car, and have to have it, get a mechanic to go over it with a fine tooth comb. Have him document EVERY flaw, and present this list to the seller. Hopefully you can get the price down.
Obviously, if major issues are uncovered, you can walk away, or demand they be repaired before you make an offer....
EDIT: Check to see that the recalls have been done. Look under the car and see if the transfer case leaks (wet under the car around the transfer case yoke). That alone is a $300+ repair bill.