If I had a dollar for each time somebody asked me this question I would be a very rich man!
When I recently Googled this question I received more than 1,200,000 hits so there is a lot of good information out there but there is also a lot of misinformation as well.
I have been using and always recommend a good brand 20W/50 Mineral based oil for all of my engines that I own and also build.
When I say "good brand" I mean Mobil, Castrol etc....not some unknown brand from some place I can't pronounce.
You have to remember that the VW engine is air cooled and therefore relies heavily on having the correct engine oil and other things to keep it running cool and to keep it happy.
Also, the VW air-cooled engine runs very hot in oil temperature when compared to a conventional water cooled engine and therefore the oil actually gets burnt and loses its lubrication properties and additives quicker and this is why the oil changes are at every 5000 km/3200 miles. The other extremely important thing to do is clean your oil strainer at the same time unless your engine is fitted with an oil filter. Remember, your engine relies on clean oil to keep healthy.
The other important thing to do is to religiously change the oil and clean your oil strainer every 5,000 kms.
I also suggest that you also install a remote spin on oil filter as these will certainly keep your oil clean.
So, in summary, I suggest you use a good quality 20W/50 Mineral based oil and change it regularly.....Supercheap and Repco and even Kmart and Target often have specials so keep your eyes open.