I haven't heard of a VW in a T-37 before and don't know anything about them. Thirty three to 40 hp seems to move the boats along well enough so if it's in that range and in sevicable condition it would probably be just fine.
You might want to check into parts availability but I wouldn't rush out and replace an engine that's working fine.
BTW, when we used to race a Lido 14 we thought a Thistle WAS a big boat what with that plumb bow and all. I guess it's all relative.
Good luck with your shopping.
-Jim