Interpreting Leak Down Test Results

I am looking for some help interpreting some leak down tests to see if I should push my dealer for a new engine or allow them to rebuild.

I have a '99 VW Passat 4 cylinder 1.8 Turbo and around 68,000 miles it started consuming 1 qt of oil per 700 miles. The initial leak down tests were as follows:

#1 - 2%
#2 - 16 %
#3 - 1%
#4 - 5%

In December '03 the dealer decided to replace all the rings and honed the cylinders.

In April '04 the engine started consuming oil again at a rate of 1 qt per 500 miles. I took it to the dealer and they did another down test. Results are as follows:

#1 - 22%
#2 - 24%
#3 - 25%
#4 - 11%

The dealer would like to re-do the rings and based on the results it seems they have made my engine much worse. The good news is it is still under warranty. But I want a new engine as it seems that any fix they do at this point will make it worse than when I brought it in the first time.

Do I have a legitimate gripe to push for a new engine??

You have TWO seperate issues. The oil control rings AND the compression rings are both leaking.
An engine inspection is required to determine the best course of action. If something has scored the hell out of the cylinder walls, then its time for a proper rebuild. If things look okay, and the piston clearance is still within spec, it just means that the cylinder walls have become glazed before the rings became seated. This may be a problem with the way the engine was honed or it might be a problem with your driving style after the new rings were installed. Try to aviod constant speed highway driving for 1k of miles or so on a new engine.

After new rings have been installed the engine shouldn't be driven at constant speed.
The wear in of the new rings will be done at about 30-60 minutes if they are uncoated. Under that time the engine should be driven with full/near full throttle for a short time at low to medium speed and then the throttle should be fully released for a short time and then repeated again. A high quality oil should also be used. The high cylinder pressures at full throttle will push the rings at the walls and wear them in, when the throttle is released this will allow the rings to cool down and be lubricated.

A new engine will cost somewhere in the region of $6-7k and is therefore not the first thing they replace. It is also not the local VW dealer that decides what shall be done with the car, they follow the guidelines from VW in your country which also pays for the repairs and for the engine to be replaced it must likely be approved by VW since it's such a large cost.

Thanks for the response. I appreciate the great input and advice.