Touareg :: Check Engine Light Going On / Off

I've got a 2005 V6 Touareg, 78K miles, and the check engine light comes on from time to time. The dealer says it's a timing fault and that the engine needs to be "torn down", repairs between 5K and 7K. Car works fine except for the light going on/off.

I have an extended warranty, purchased from VW (but not a VW warranty). The warrenty company won't guarantee that they'll cover the repair unless there is evidence of a problem. The dealer says that timing issues won't show any evidence of a problem (something about a tensioner, and there being no visible sign of an issue with it). I think the warranty company is trying to get out of a repair.

If I don't fix the problem, I am told that the engine will incur significant damage. The warranty company won't fix that either because, now that I've reported the issue, they'll have on record that I chose not to catch the problem earlier. I'm not familiar with timing issues, tensioners, and whatnot.