Scanned the codes and found:
16885 - Vehicle Speed Sensor: Implausible Signal
I replaced the sensor, but the speedometer still didn't work.
I performed an output test on the cluster with VAG-COM and found that all the gauges were working properly... so it wasn't the cluster.
Here's how I fixed it... I hope this helps anybody who is struggling with this issue in the future.
This is the part that you need to replace, its a magnetic ring inside of the differential case
Part # 012-409-182-C

First, remove the left front wheel.
Remove the axle.
Drain the transmission fluid.
I think these are all pretty self explanatory.
Next, remove the axle flange. It just pulls straight out of the transmission. The easiest way to do this is with two long bolts with the same thread as the inner cv bolts (8x1.25). Make sure they are threaded their entire length. Thread them into the holes like you would the cv bolts, across from each other and tighten them alternating between the two, this will push against the diff case and pull the flange out evenly.

Now you'll need to remove the side cover from the diff case. First unplug the VSS, remove it, and push the plug out of the way. Now there are 9 Torx bolts to remove. The one on the far right is the most difficult because of the tranny mount bracket. They are all torqued pretty tight, I had to use a breaker bar on them.

Here is the cover removed

As soon as I removed the cover, the shattered pieces of the ring came falling out and my suspicions were confirmed

A few pieces of the old with the new

Here is the differential. Notice the last little piece of the ring still clinging on at about the 10 o'clock position

At this point I took the opportunity to replace the output shaft seal. Simply press out and press in

Now it's time to install the new ring, it just snaps onto the shaft

A closer look

Then it's just a matter of putting it back together in reverse. I added a thin coat of grey RTV (gasket maker) around the edge of the cover to make sure there weren't any leaks
New axle installed (with new inner CV bolts & new axle bolt), VSS replaced, and hose in the fill hole for new tranny fluid. I used 3 quarts of Mobil 1 75W-90, which was the best thing I could find locally.
CV grease everywhere... oops


So my winter beater now has a working speedometer, and as an added bonus the transmission shifts much smoother with the new fluid.

I hope somebody finds this helpful, because when I was looking for a solution I couldn't find much info on how to fix it.
Cheers

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