THe 40k/60k timing belt replacement interval was an embarrassment to VW (though less of an embarrasment than wrecked engines!) but the newer 80k/100k belts get that cost down to reasonable. My dealer's offered price for replacement (with the new parts) was $650 (U.S.) and many dealers are less; independent shops will also do for less and basic parts are only $150-$184 in several mail-order places (including serpentine belt, cam seal, and replacement bolts). I'm doing the replacement myself to lower long-term out-of-pocket $$, using the excellent how-to help available on tdiclub (which you could also show to a local honest repairman if you didn't want to tackle it).
COtdi, your dealer seems to have soaked you unless there was plenty else he replaced in the repair (like the water pump). I think you'd have cause to go ask for some money back!!!!!
Bottom line- timing belt repair cost shouldn't be the determining factor on keeping the car, I hope. On the other hand, DO replace that water pump next time (and DON"T pay dealer cost- get from Dieselgeek or Impex, etc.)