Thanks for both your valuable inputs.
I guess it all boils down to how much effort you are prepared to put in and how long you are prepared to live with a car as is. I understand Sam has sentimental connection to his car so in this instance worth letting it play out as long as it takes.
I live in a small village and have to rely on my car to get to work, at the moment I am working from home but that's set to change very soon, I have no way to get to the train station without my car.
Also I don't tend to get attached to anything material, I love the car as a driving machine but its just a car to me so just not worth the stress of having to deal with Audi UK if its likely to go back and forth for months and with an unfavourable outcome.
As for other manufacturer's, I had a 12 year old BMW that was recalled and repaired for free, this was a £200 part and probably 2 hours labour so nothing in the same league and I know Subaru would not have fixed the similar issue on the 2.5 boxter engine for free.
For the age my car is in great condition, if I spend the money getting the engine fixed I know I have a good car for the next 5-10 years if I wish to keep it however I know I will never get that money back, if I sell and buy something else I have no idea if I have purchased a lemon.
I will let Audi have a look, will refuse a ridiculously priced oil consumption test and see what happens, if its looking unlikely I will offload it.
BTW, I contacted Marc "Elvis" Priestly as he had an engine rebuilt on wheeler dealers but the company he used specialise in Mini, good guy and we conversed for a while.
This kind of leads me into another question. What second hand buys would you recommend as a good solid car in terms of reliability? On the list I have the following.
Renault Megan RS 250
Vauxhall Astra VRX
Mazda 3 MPS
Ford Focus ST
Volvo C30 T5
Prior to this S3 I had an A4 with the V6 3.0 litre diesel engine that had all sorts of gremlins so will skip Audi for a while.