Guys, thanks for the ideas and feedback!
Perhaps I should say what I'm after. My aim is to build a fun Locost 7. I'm not planning on putting in any major horsepower. I like simple, efficient, reliable equipment that I don't have to fix very often. Becoming a slave to a toy ($$ and time) just sucks all the fun out of it for me. Hence an easy to work on, rather bomb-proof old Toyota doner to start with (1600cc 2TC or upgrade to a bigger 3TC engine) . I might never visit a track -- just enjoy some twisty roads in good company. I'm willing to go to some extra trouble if it looks to be worth the effort, but I don't want to loose sight of my intended purpose ... fun!
While the MBZ IRS is a trailing arm type of design, the hinge axis is not parallel to the half-shafts driving each wheel. As the suspension compresses, the top of the tire angles inward. When unloaded, the opposite also happens -- changing the camber. Have you guys looked at this? Is it worth anything? One thing I like is that the entire IRS from the MBZ is bolted to the chassis via elasnomeric mounts. Just loosen a few bolts and out drops the entire IRS with disk brakes at the wheel and parking brake cable. If the track-width is right and the weight isn't too bad, you can just bolt it to your frame and have the driveshaft altered to fit. It doesn't get much easier ... but is the complication of the MBZ IRS worth it? On bumpy roads the MBZ has some wheel-hop which I really don't appreciate. There were some MBZs with limited slips, but I suspect finding one in junkyards in my area is probably a lost cause.
I agree that a live axle would be simple & reliable -- which is very attractive. But having basically no experience driving performance cars (my MBZ has a nice cushy ride, but it has no pickup at all), I don't really know what I'd be giving up by choosing a live axle over IRS. I do know that I can find all sorts of diffs for a Toyota 8" if I want to spend the money. Yes, I could probably arrange a rear disk brake conversion for a Toyota 8" axle to make stopping much more dramatic. I would also do a triangulated 4-bar linkage, probably with coil-overs. I do actually like a fairly hard ride so I can feel the road.
So which set-up am I going to like better in the long run given my stated purpose?
I really appreciate your help steering me right because I don't want to waste time or money and end up with something I don't like.