The oil is plumbed under pressure to the turbo to lubricate and cool the bearings etc, then the drain is gravity fed from the bottom of the turbo back down to the sump.
Depending on the size of the metal fragments in the sump, they likely would not make it through the oil pickup (which has a type of metal mesh gauze) to prevent anything foreign getting pumped through the engine. Only very fine fine particles would get through and these should be captured by the oil filter.
Plenty of turbo's on Mk7 R's have failed in the past 3-4 years, and i do not recall anyone having to replace the engine - they have all been remove and replace turbo and do an oil change.
Perhaps its worse than how it sounds if VW are saying it needs a new engine. Personally i would get a 2nd opinion before spending a large chunk of cash that might not be necessary.
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