I am glad you had success in finding and correcting the issue, and that you shared your experience with a follow up post.

All solved - traced it back to a faulty connection post fuse box.  Easy pleasely.  Thanks guys!

As above I'd check the fuse for the side/running lights or a break in the wiring somewhere, when you got to the headlight  position it will back feed the side/running lights hence why they work with the headlights.

It does sound like the switch has failed. Since the source is not fused, a mistake like a too long grille screw in the slam panel going into a headlamp wire would destroy the switch quickly. Get a +12V source and add an in line fuse and then connect it to the red and then blue wires and see what you can light up. A 10 amp fuse should suffice. 

Mur - is it true that I can test the switch for continuity across the 3 pins on my switch - when in position 1 or position 2?  I am not getting any across those pins - or on the old headlight switch.

Brown is +12V hot and not fused.
blue goes to the high beam/low beam switch
red goes to a fuse and then to the various dash and marker lamps. Cars up to late MK III cars had this as an in-line fuse, the MK IV cars had this as the bottom one on the four fuse fuse block.

So have an odd one...I have no running lights (fronts, rears, license plate lamps) on with the fist position on my headlamp switch.  I have headlights on on the second position (high and low beam work fine).  I suspect it is the switch...ended up buying new OE switch - same issue.  Dash lights do not come on as well....or they flickered when driving at night over bumps.  So figured it was poor connection, but I have a 100% new wiring loom, switch, fuse box, batt, ground points, etc.

Anyone have any idea where I can start to trace this issue? 

I started to see if I can get continuity on the pins on the back of this switch....assuming that you have a brown wire (main power in), blue wire (headlamps) and red wire (side lights I believe).  Assuming this is true, should I not be able to check continuity with the 3 pins on the back when switch is in the on position?  Right now I am not getting any continuity on this switch with it on the 1st or 2nd position.

Thanks for any help.