I am at the beginning stage of rebuilding my 1.8L to a 2056. I am prepping the block and replacing the oil gallery plugs with 3/8 NPT plugs. Would it be a good idea to replace one of the plugs by the oil filter housing with a oil temp sensor?

Better to use the taco plate.

1.) Is there sufficient room to install and wire it up?

2.) Will the probe interfere with oil flow in the gallery?

Since Porsche/VW never installed one in the location you wish to there had to be a reason.

I installed a Scat 1.5 qt deep sump kit with a oil temp sender installed and the temp gauge hardly moves.

Wrong or faulty sender/gauge.

A quick base test is to bench wire it and put the sender in boiling water, at least that gives you a 212F (100C) mark.

There's a thread that McMark did about correct senders, it's likely in the classics.