I am planning a dune buggy project, so my question is "Is it possible to hook up a transfer case to an air-cooled VW engine similar to the ones out of the old Bugs?" If not, any good ideas for a good engine, transmission and transfer case for a dune buggy cheap?  

Not sure if you even need one. With rear engine and transaxle the front end is pretty light. With some paddle tires on rear it should do really well and steer better in sand than a 4x4 too. The more you can keep weight down in sand, the better.  

Technically it wouldn't be a dune buggy, but it would look like it. A street/off road buggy would be a better word for it. Something I could drive to work, and on the weekend go and take it to the mud hole.  

Make a street legal buggy with two sets of rear tires, one for street and one for dunes. These buggies ruled the beaches long before 4x4's and a lot more efficiently too.  

dune buggys rool! saw on extreem 4x4,a honda? fwd assembly turned sideways,normal like,then hooked to some kinda axles,ifs deallywogger,cant remember back that far,but it would climb strait up a wall.a cool idea is ta get a late 80's toronado,riviera 307 v8 trans axle,gonna be heavy but i think you can bolt on up to a 350 olds to the T.H.375? SnoMan? Mudb8?,iffin your real good ya can find yourself a 455 toronado transaxle from in the wayback,500 ftlbs of go aught to be pretty authorative.That may be too heavy for a rear engine sand rail,.i thought it be cool to order a frame and mod for IFS and IRS,using half or 3/4 ton chevy a arms and 44 center sections from a vette ,dont know how good a reverse rotation action would be ,but with a 231 turbo 6 from a Grand National regal hooked to a 700 tranny in a rear engine front ,wherever to a 208 t case.a long shaft enclosed to the front,cause it aint movin,and maybe only a u joint btween the tcase and rear 44,jus ta make it intresting use a yota tranny and tcase to really shorten it up.Sorry bout going all over the place,luck to ya!  

I'll keep everyone posted on how it turns out. I've already got a frame I can buy from a guy I know, and I plan on going parts shopping on Saturday.