Firstly I'd recommend turning the bass down if its distorting, by EQing past the halfway mark you're always going to cause distortion, it's like a overdriving a guitar amp.
I personally think (bearing in mind I'm a bit of an audiofile) that the stock headsets are rubbish and produce a very noisy sound. I started by adding an amp, bit ten D processor and new alpine component speakers with a sub. Even with the Bit Ten cleaning up the sound I wasnt happy with it. Replaced the head unit for a quality one with RCA outputs to the amp and now am satisfied.
Soumatrix offer speaker packs designed for the VW headunits that are a plug and play option that get favourable reviews, might be worth checking out. If you just replace the speakers and not add an amp you want to make sure they are ones that respond favourably to the very low power output from the headunit.
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