There's too much rust in the substructure (i.e. between the panel layers) - you can even see it in the photos beneath the firewall, meaning you need to access these areas to fix them... in effect cutting most of the panels away! Despite what people say, you do need to be a skilled sheetmetal worker and welder to do a proper job of this sort of stuff. Rust spreads so quickly that it couldn't possibly be contained in that one location.
Mk1s are still not a rare thing and 90% of them are in better nick than that one, so I'd consider it a pretty easy decision - especially given that there's a few thousand dollars worth of repairs before you can even begin 'bodywork' as such.
It's also not possible to weld new floor sections to already weak sections of bodywork: they'll only end up buckling and peeling away. What I mean is, you'd be welding new floors to those chassis rails, which would already be rusting away internally and this is both a waste of time, and not safe.
Anything made of metal is repairable, but only some metal things are worth repairing!!
Have a look at this:
http://forums.vwvortex.com/zerothread?id=2728723
