For the purposes of this discussion, the Type I/II/III engine will be taken to be the post-1970 1600cc engine, fitted to Sedans (Type I), Transporters (Type II), and Variants (Type III). There are minor differences between these engines, but they are/were essentially interchangable. Type IV engines are taken to be the 1700, 1800, and 2000cc engines fitted to Transporters after 1972, the 412 from, and the Porsche 914. As the introductory material has outlined, many of the earlier engines were converted, but they are now so scarce, they need not be discussed.
The Type IV engine should, and in many ways does, represent the pinnacle of VW air cooled engine design. It has hydraulic lifters, more displacement, a spin on oil filter, and an aluminum case, which is less prone to cracking. Yet the vast majority of VW aeroengines continue to be built on the foundation of the Type I/II/III.
There are several reasons for this. The first is weight. The magnesium case of the Type I/II/III saves about 20 pounds. And with widely available stroker cranks and bigger pistons, it's possible to duplicate the displacement of the Type IV from a Type I/II/III foundation (up to a point, Type IV bits are available to produce 2600cc, and Type I/II/III top out at 2300cc without huge expense and reliability concerns, and even that is pushing it). Another issue is cost and parts availability. The Type IV engine was produced in much smaller numbers, and there is NO current production for key parts like the case, plus cores are much scarcer. Specialty parts (like stroker cranks and big bore cylinders) are also scarcer and more expensive.
There is also a severe problem with prop hub attachment using the stock crankshaft, or aftermarket cranks that retain the stock form of the fan end of the crank. Type IV cranks, unlike Type I/II/III cranks, have a steep taper to attach the cooling fan, that WILL NOT "self-lock" like shallower tapers typically used on prop hubs. This was often dealt with by fabricating a tapered spacer to accomdate the use of the stoutest Type I/II/III prop hub, but this arrangement of fittted parts "in series" was not reliable, and at least 2 airplanes lost their props in flight. There are two cures for this; mount the prop on the flywheel end of the engine, or use a Type IV crank without the steep taper (either by welding up the crank nose, or by machining it from a raw forging this way).
A type IV conversion does make some sense in parts of the world (South Africa, Australia) where they WERE much more common than Type I/II/III, or in Europe where there is more of a Type IV "scene" to suppy the demon tweaks. All others should probably stick with the Type I/II/III