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Mike-
This is a pretty easy swap. I've swapped 1.8 for 2.2 and 2.5 for 2.2 in a couple different Imprezas and Legacies from a range of years with no problems. I have found it easier to swap manifolds (keep the original with the car and bolt it up to the "new" engine). I have not run into the bellhousing issue mentioned previously, but it sounds like there is an easy fix if you do.
If you are looking for a REALLY cheap way out, I have a perfectly good 1.8L (originally from a 94? Impreza) sitting in my garage that you can have for FREE if you come pick it up. It is pretty much complete although I may have pirated the fuel injectors (you may be able to use the ones from the blown engine, or I may be able to track down a working set in the garage). It has around 100K miles on it if I remember correctly. It would make for a fairly slow car, but that engine is pretty much bombproof.
There's also a front wheel drive Impreza five speed available for the same price if anyone wants it, all part of the "Clean out Mike's Garage Sale"
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