Whoops! Just looked a bit higher in the thread.
Yes, you should separate and seal the bottom of the engine from the top......that's why original VW's had all those shrouds and seals to seal up the engine compartment and keep the hot air from below (from the heads and exhaust pipes) away from the cool air intake. VW Beetles got all of their cooling air from the engine cover louvers, hence a lot of folks used spacer hinges at the top of the rear hood to push the hood up and get more cooling air in there, especially in hotter climates.
Take a look at the 1984 CMC manual in the on-line library - page V-11 shows the shields they recommend to separate top and bottom. Those should be combined with a suitable firewall "splash apron" and weatherstrip material as needed to seal off the engine compartment. I used 3/8" thick rubber floor mat material (Home Depot or Lowes) and attached it to the firewall with adhesive and hood liner mushrooms (from NAPA) in such a way that it pushes up against the engine tin (on the flywheel end) and then used a couple of pieces of 2" aluminum angle to attach the firewall piece to the lower engine insert. The CMC manual implies that you should also add a collar (page IV-18) to the firewall apron to act like a tunnel to the air intake, but I was afraid that, should it work loose it would get sucked into the fan and cause all kinds of hell so I deleted it with no apparant ill effects. Besides, having that hole in the firewall is better than original Beetles and they seemed to survive OK........
I made the engine compartment inserts from HVAC sheetmetal and attached them to the CMC frame with 10-32 screws so I can remove them to get the engine in and out. The CMC manual shows four inserts, while I made only two (upper and lower) and then used door weather stripping (frost king from Home Depot) to seal all the edges. It all came out looking professional and it seals really well.
Take a look at nichols1 in the files section and there are three pictures of my shield set-up. Let me know if you need more info.
gn