Ted- Stay with the stock .89 4th gear, as making the 3-4 spread any bigger will just be awkward; you'll have a 4-5 mph spot between the 2 where the engine's really revving a little too high in 3rd and in 4th the fan speed will be just a little too low to be really comfortable at anything but a light cruise. It works with a bigger engine (over 2 liters usually has enough torque to cruise that low) but the 2 or 3 guys on here that have done it (Ron O and I don't remember who else) didn't like it, even with bigger engines. With the 3.88, .89 and 25" tires, 3500rpm will be 77-78mph and with 24 1/2" tires it'll still hit 75-76mph.
I think it's a good thing that you're farming the trans work out to someone close and not sending it off to one of the big trans companies; it's always great to spend your money as local as possible when there's someone competent to do the work. But, whether "it's going to cost more than we'd thought' or 'oh, *that* one...", you need to keep on top of it; there's nothing worse than them assuming you want this or that, and it lets them know that you don't want it sitting there forever, so call and check often enough that they know you want it soon.
If you were running substantially different tire sizes front and back and you'd upgraded to front discs then I'd say you definitely need to upgrade the rear brakes, but your car has the same tire and rim sizes front and back, correct? With the same tires all around, the front disc/beetle back drum combo is fairly balanced (VW did it on the Karmann Ghia and it worked great) and will work for most people almost all the time. Unless you really like to hot-foot it around on a regular basis it's not necessary, but if you can afford and justify the rear discs, you could do it. That $400 would put a stroker counterwighted crankshaft in your new engine though. A 78x94 would really kick ass; just sayin'.... And then you could decide at a later date if you really need rear discs.... Hope this helps, Ted. Al