Doing some reading and it seems that not installing the head gaskets are the thing to do when rebuilding a TypeIV.

That being said, could the damage below be one of the reasons for a poor running motor?

I was told that after the motor was rebuilt the PO had nothing but running issues and kept replacing fuel injection components on the Djet trying to hunt down the problem. Finally got fed up and threw a 2.0 from a wrecked car.

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I don't use head gaskets, if those were leaking then yes it can cause issues.
But I've seen much worse.

Agree with Mark Henry as does a long time type 4 mechanic here in Costa Mesa: Don't use them and they will not blow.

Saw some original factory installed head gaskets and one cylinder sucked in one of them I heard Porsche issued a bulliten to stop using them.

good info Bruce / that is what Norm at Mesa West has used for years as his rebuild set-point on head gasket use / dont do it.

Shouldn't you lap the barrels into the heads if not gasket is going to be used?

It wasn't Porsche, actually, it was a VW bulletin from 1992. Porsche never said not to so the people who insist they're Porsche engines and not VW take that to mean you should use them. You shouldn't. Adjust your deck height and compression with gaskets under the cylinders to make up for what you lose from removing the (compressed) head gaskets. And yes, lap the cylinders into the heads.

1 - Is everyone sure those are head gaskets? They dont look quite right

2 - Those sharp edges in the comb chambers could easily cause detonation. Detonation for no apparent reason might cause one to retard the timing trying to get it to stop. Retarded timing results in poor performance.

3 - I dont use head gaskets

I was able to remove all four, none of them have a round ID, material is squished inward like more tension on the exhaust valve side.

So you were able to remove the head gasket?
All clean with no visible damage from leaks?

Gaskets came out with just my finger nail.
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Heads have a little damage where the gasket was.
One spot had something under the gasket which left a small divot.

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You said fail, but the gaskets all look intact. That divot is odd, but all in all it doesn't look bad. Or abnormal. When a gasket "fails" the combustion gases will erode a path across the sealing surface of the head. I don't see anything like that, can you feel it, like with your fingernail?

I removed something from the divot, grain of sand sized something.

Surface for sure needs to decked, you can feel high and low spots where the gaskets had been.

There are always machining lines left around the circumference, but are there any lines radially, across it? That's an actual fail, when the gasses cross where the gasket was, and not just carbon deposits or discoloration, but actual erosion of the metal. Doesn't mean it's not there, but I can't see that in the photos. Minor irregularities will come out when you lap the cylinders into the head.

I get what you are saying, I guess headgasket "failure" is the wrong terminology here, of course who knows if that would have happened in the near future if ran like that.