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I've looked into using a 1NZ in my third gen MR2 for some time. I recently realized that 2ZZ-GE cranks fit the 1ZZ-FE so it's extremely easy to destroke a 1ZZ-FE to 1.66L and thus shift its performance characteristics to something similar to that of the 4A-GE. I think I'm going to go with this when my 1ZZ gives up on me. The 1NZ can be used with C56 and C60 transmissions that fit my car, but you need a custom adapter (which someone has made before, they he turboed it and got a neat little monster that got 40mpg and could burn a little rubber when asked to).
It's awesome that you got a Microsquirt working with the 1NZ but I feel like you would've had an easier time just using a stock 1NZ ECU? Then you'd get automatic VVTi control. Well either way, it's great that you got it working, 1NZs have a number of aftermarket valvetrain and bottom end parts available so it would be hard to build the engine a bit if you wanted to. Like you said, the block is practically free.
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