The engine swap is your easiest option. The breakers yards are full of the Tomcat (2.0T) engines. If you get one from a 600 or 800 you will need engine mounts from a 220 or 420 - these just bolt on to the block. The 600 engines come with a hydraulic gearbox so are a little harder to convert (although the block is esesntially the same).
I got a 220 engine for £700 and then spend another £800 stripping it down and rebuilding the thing. I wish I'd gone for the turbo though!
You should uprate the gearbox as the 1.6 box will not be happy with the turbos power. The turbo can also be fairly easily tuned up to around 250bhp so you have a phase 2 to your project.
The 1.8VVC is also a nice engine and very reliable compared with Rovers other efforts. It might be worth researching this and might be a bit more insurance freindly.
By the way the suspension setup on the front of the turbo is different to the non turbo so you will need some 220t or 420t front springs and dampers for a proper job.