2003 Volkswagen Passat oil pressure

Engine Performance problem
2003 Volkswagen Passat 4 cyl Automatic 42000 miles

My husband was driving my 2003 Passat GLS yesterday when the low pressure/stop engine light came on. He pulled over and turned the car off. After checking the oil and noting that it was fine he got back in the car and started it up. The light came back on when he got near our house. The car would only go about 8mph and was making a loud knocking noise. After looking online I'm scared that we may have the dreaded sludge problem that so many people are experiencing. We've only had the car a little over a year. I'm scared to take it in to the dealership and VW not honor our warranty because we don't have documentation of the previous owner's oil changes. The dealership has no record of this either. I refuse to pay 5 more years for a car that won't run, and I absolutely can't afford $8000 if it needs a new engine. Is there a way we can get it running enough to trade it in? Thanks for any replies.