I don't mean to make too much of a tangent, or an old memory, but the 1974 Super Beetle did not have a head gasket to change. It was good practice to lap the cylinders into the head with some valve grinding paste prior to assembly and head nut torquing; but there was no gasket between the cylinder barrels and the cylinder head in that model. You're getting good and practical advice from others in this thread.
I got my gen 3 last October. It's been a pretty good car so far! About 35,000 miles on it during that time. Needed a little brake work and a couple of wheel bearings. Around 240,000 miles and it doesn't use much oil. Fresh paint, thanks Toyota! I would pay $4000 for the one you have described, if it was in good condition.
Anyone have any idea why the head gaskets go on these cars? What's the difference between the Gen2, Gen3, and Gen4 such that only the Gen3 is a problem child?
EGR system that clogs. Gen 2 doesn't have it. Gen 3 got a newly-designed EGR system, very obviously was untested. Gen 4 fixed it.
Generation 2 had a completely different engine. Head gaskets tend to fail with inconsistent operating temperature management. Some blame the performance of the variable speed electric water pump and/or the software controlling the pump.
My 2 cents of any older car including Toyota is you either should have the cylinders scoped for damage or you should be given proof the oil was changed at the short oil change interval religiously with the correct oil. I'm finding more and more cars, including plenty of Toyotas, that people just go with yearly oil changes and end up damaging the cylinders. Then you have an oil burner that fouls spark plugs and catalytic converters. Correct. Stock air-cooled VW's did not have head gaskets. The only gaskets on the heads were the valve cover gaskets and the push rod tube gaskets. Usually you'd put a dab of silicone on the washers under the head nuts so they didn't leak oil out the stud holes.