I heavily modified a '70 Squareback for high altitude mountain travel. Some of this is a bit expensive, and some is basic, but you would do it in the order indicated. The end result was a car that got too hot at zero degrees. A note to beginners: most mechanics do not understand VW heat systems, so read the 'idiot book' (How to Keep Your Volkswagen Alive by John Muir), and be wise! Also, fogging is best removed by a lot of slightly warmed air, as air dries with warming, then picks up the moisture from the glass, and cools. Get the warmed air to the glass first! Vents in the back of the car are needed to help 'pull' the now-moist air out. A bad rear hatch seal doesn't seem to hurt anything in the pre-vented T3. The silicone product called Rain-X helps avoid two problems; fog on the inside, and cold water, snow and ice on the outside. It wears off.
1. Check the two 'piano wires' that open the heat exchanger 'doors', since they rust and break. Fix with coathanger.
2. It is possible that the plastic 'vapor barrier' sheets behind the door panels, and the little vinyl patches that cover the fender bolts behind the rear panels, have ripped, been removed, or fell off. Replace anything that is missing.
3. Check that the rubber plugs, and sealer that goes from the hood (bonnet) to the inside are sealing out cold, high pressure air. Fix with expanding foam, silicone seal, etc.
4. Insulate the exposed part of the heat exchanger plumbing with fiberglass and a protective cover like aluminum flashing.
5. Replace the expensive door seals. The stock system relies on a negative pressure in the vehicle. This will make the biggest difference if they are bad now. I wouldn't dink around with strip foam and sealer. This is a big expense, but critical.
6. Add electric 'squirrel cage' fans under the back seat. 914's had some nice ones, so check the junk yard.
7. See http://www.bulley-hewlett.com/VWindex/ for insulating tips. I would add that holiday packaging may offer some insulation in the form of styrofoam packaging.
8. Above assumes no rust holes in the heater channel tube from under the back seat to up under the dash.
9. A non-stock looking modification, that works great, is to fabricate two ducts that take warmed air from the back, and plumbs it down to the heat exchanger intake. Block off the engine fan ducts outlets, of course. This has the advantage of rewarming the air. The fans from above push the air through. Do the passenger side first. It works a little better in dry climates, since humidity is recirculated more. All new cars have this option.
New Type IIIs had fine heat, but it did take a while to get going. Good luck, and e-mail me directly with questions. I want you all to be nice and toasty! Avid