Thanks BUGGOFF, for coming around and all the usefull info. Much appreciated.
Ok well, I change the points and condensor and was playing around with the timing. Managed to maybe get it 80% right.
She now starts without the draging..

I thought was something major wrong. lucky not..
BUT it seems I have the wrong distributor for that motor on there.

Forget to take the part number on the current distibutor.
Hopefully I will get one by this weekend and going to get Fred to sort out the distributor and also carb as well.
According to the webisite below, this is the distubutors and specs for my motor.
http://www.oldvolkshome.com
Bus & Pickup 1966-1967 * 1500
Distributor: VW 131-905-205, Bosch 0231 137 011 > 315-905-205B, 0231 137 031
Can Use: VW 113-905-205K/L, Bosch 0231 137 009/010, 113-905-205M, 0231 137 021, 113-905-205T, 0231 137 035 or 036
Points: 01 009
Points Replacement Plate Assy: VW 111-905-227B, Bosch 1237 110 139
(Note: Order 01 013 Points if using this Plate Assy)
Condensor: 02 007 - Note: If equipped w/AC use 02 069
Rotor: 04 006
Cap: 03 001
Parts Kit (Washers, Shims & Hardware): 059-998-211, Bosch 1237 070 007
Coil: 6 Volt - 00 001, 12 Volt - 00 015
Blue Coil: 6 Volt - 00 016, 12 Volt - 00 012
Vacuum Can: 07 017
Ignition Wires: 09 001
Spark Plug: W8AC
Timing Set At:: 7.5deg BTDC Static or @ 800-950rpm w/strobe and vacuum hose disconnected and plugged
Advance/Retard Range: Vacuum (Advance Only): 17-19deg @ 1.3 In. Hg, 24-28deg @ 3.2 In. Hg