Engine swaps are allowed, but I think I'm correct in assuming it's got to be <5 cylinders, not forced induction and should retain the manufacturers original induction system. At least that's what it was, Nick will know for definate as he's king of the blue book
So T5s are a definate no-no. A 2.3 Redblock is therefore your best bet, although the use of Megasquirt is probably not technically allowed, so you should use the standard ECU from a 940 (or whatever). Whether scruts would actually notice this or not is a different matter!
Ideal option would be a B234 (although there might now be new rules on 16vs I cant remember), which is the route I'd like to go down when I have some money. Current plan is a plain old B230 though.
Pride and joys are a definate no go for rallying. I wrote off a 205 on 12 car a few years ago, which I loved to bits, and I was totally gutted, and it wasn't really anything special. Although writing off the car is an extreme and unlikely situation it's easy to pick up a few scrapes, scratches and the odd dent! There's no way I'd take out a mint/rare car on an event.