TDI owner here (2003 Mark IV/ALH engine, 2 generations before the EPA Tier II and Euro 4 regs in play here) ...
The really shocking thing is that they got away with it for 6 years. Surely they must have known that CARB, Mythbusters or (as in this case) some pesky college kids would eventually do a tailpipe test on the road, and there'd be hell to pay.
The real question is now is who knew. This was not the work of a single rogue ECU programmer. It might have been the work of an entire engineering section, who over-committed to being able to meet EPAt2/Eu4, and then discovered that they couldn't. Odds, however, favor that management knew, all the way up. Don't be surprised if VW (Audi, etc) isn't the only conglomerate found to be gaming these regs (t happened before, with diesel truck engines in the late '90s).
I've been ready to replace our TDI with another since 2007. VW keeps screwing up (google HPFP) and now it looks like diesel will be out of the US market again (as it was in 2007,08), perhaps this time for good. A hybrid SportWagen or Tiguan would be OK, but I'm not holding my breath for VW to be that sensible.