more than likely the seals have perished , if its the original turbo on the s1 she would be at the stage where this type of thing can happen,although i have seen it on s2's as well with low and high milage.
possible turbo removal for seal replacement is on the cards its a little bit expencive but it was going to happen anyway,its a bit of a tricky job to remove the turbo but the handiest way is to remove it attached to the manifold when off remove the actuator and the two steel water coling pipes if fitted in place and it should lift up and out
dont forget the oil return pipe underneath
might be know harm to get a second opinion before doing any of the above