D2 Alarm settings
 

Not sure if this is the right section but is it possible with a '96 D2 using VCDS to set the indicators to flash when the alarm is armed/disarmed, hence when locking and unlocking the car?

You should be able to, will post details later from ElsaWin

You need to change software coding for central locking . Before changing anything you should write down existing value so that you can revert it back if something does not work out.

Coding is made up of sum of different codes for different functions so to change it you need to add or subtract a number of the function to the software coding.

Below are 2 pdf's, one with standard coding for cars up to 07/96 and other one has standard coding for newer cars and additional options and instructions.

Indicators should be flashing as standard, if they are not then it looks like somebody removed function by subtracting 512 from the coding so you should add it back.

Thanks for that I will have a fiddle :)