Car Problem

lack of oil pressure by the sound of it. i would'nt run the engine at all until someone can check it out for you. could be oil pump failure.
 
as steve says, sounds like oil pump failure, if it was something simple like the pressure switch it wouldn't cause the tappets to knock. def seems like a loss of pressure because of the tappet symptom
 
And just to add to your woes - the 1.8T can suffer from 'sludge' if the correct oil and interval isn't used. A search on the interweb'll turn up loads of people with the same problem.
 
I had this very problem with my old 1.8T, and it turned out to be the oil pump. I had to have it replaced, and it was fine afterwards. I would not advise you to run the engine as the pump may have failed and it will not be pumping oil up to the top of the engine which may cause damage to the tappets and other components in the head. Get it checked out by a garage.
 
Sounds like sludge causing oil pickup blockage - been there, had that :3sadwalk:

Manifested itself on the drive home after buying the car, but being a nutter of the first kind, I got stuck in and dropped my sump, replaced the oil pump, thoroughly cleaned all the cack out of the sump, ran the fresh oil for 500 miles, then changed again.

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Since then not a peep from the oil warning light. Cost just shy of £300 in parts if I remember correctly.

I think the car was abused by the previous - short runs, no cool down.:no: