This is an old post, preserved for reference.
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I have also built some VIC20 Diagnostics Cartridge, using my VIC20 Penultimate Cartridge boards. These also ran a selection of cartridge games and worked as a memory expansion.
To simplify things further, I dispensed with any decoding. It only needs 1K, so I've set the RAM enable line to be the first 1K address in block 0, the rest of the RAM chip is unused. It may seem a waste, but it is a single use cartridge and only needs 1K. The extra RAM would only slow down the initialisation process. Same with the ROM, the high address lines are tied high, so only the lowest 8K is present in block 5. That gets the chip count down to two, so keeps the cost down as well. Also, no need for sockets here either.
This cut down cartridge is now small enough to fit inside the VIC20 with only the reset switch sticking out. The cut-outs on the side help when removing it.
To go with the diagnostics cartridge, you need a set of loopback plugs. To simplify the production of these, I've built boards for most of the plug, so it all fits together into quite a nice kit.
The datasette plug loops back to itself, but the keyboard, userport and IEC port are wired together.
Not forgetting the joystick port loopback plug.
With all of those in place, the diagnostics cartridge can complete its testing.
UPDATE:
2022 Update: The Penultimate Cartridge includes built in VIC20 Dead Test+ and is now available from The Future Was 8 bit