Yeah, 160 is not easily attained. The cases tend to start doing weird things with big power over about 6500 RPM. There are billet cases available but now we get into the realm of ridiculously expensive.
When I had my 1971 1.7 car I dug into the possible upgrades, and for a streetable motor that will live: start with a 1.8 914 or a 2.0 bus motor. (The 1.7's stud spacing precludes going much bigger than stock bore and 2.0 914 heads flow well but are prone to cracking.) There are several 2.5 liter bolt on big bore kits, this will make the motor 'undersquare' so it will rev better. Long stroke 'oversquare' engines tend to move the power lower in the RPM range. Balance the reciprocating assembly, this is very important on boxer layouts!
Have the heads ported by someone who knows what they are doing and go with big valves, all easily available from lots of advertisers in Hot VWs magazine. Type IV's have a nasty habit of dropping valve guides, there are 'snap ring' type guides which are excellent insurance against that. There are also large diameter pushrods which are way stiffer and lighter than stock ACVW and they can be custom made to keep the valve train geometry correct, which is pretty important.
Choose a cam which suits the rev range you want. Web-Cam and Reed both have numerous grinds to do pretty much anything you want and are surprisingly affordable.
Dellorto or Weber carbs make good power but air cooled engines are very finicky about jetting, particularly in hot dry climates. The stock 914 FI system is sorta caveman but is adequate for a street motor, Megasquirt is probably a better bet. Either way you go, pitch the dizzy in favor of crank trigger ignition.
As mentioned earlier, a free flow exhaust is a must.
For cooling, make sure the stock engine tin is all present and accounted for and just as important that it's sealed properly at all the joints. The 914 has a bellows type thermostat which opens and closes flaps to keep the engine in the desired temperature range and those have been known to fail. The debate about whether they are really necessary has gone on for years. I removed all that from my car and blocked the holes. The stock oil cooler is barely adequate for the stock motor, it's best to get one of the blockoff plates which allow you to run a big oil cooler. The best place to mount the cooler is just ahead of the cooling fan air intake. An oil thermostat is definitely a good idea. Early 914's also had a nasty habit of overheating at highway speeds; the design of the car means there is no 'ram air' effect to push air into the cooling system, the fan has to do all the work. Porsche fixed this by adding two small flaps at the front of the engine compartment just ahead of the cylinders, this created a low pressure area which helped the stock fan suck air in from the top. If those are missing, make a set from aluminum. A bud with a 2.0 914 added a small pair of NACA ducts to the sides of his car, this brought the engine temps down considerably at highway speeds.
All this will probably get you to around 135 HP (not a real big jump) but the engine will live. Avoid abnormal aspiration, detonation is a real problem!