I have a MKIII and am currently running an 18" WM4 on the rear with a 120 Bridgestone Battlaxe rear tire. Fitment seems to be fine. This bike is in it's early stages of a rebuild so I havn't used it yet with the new rear wheel but everything looks good for spacing.
My Mk111 has standard chainguard and everything and is fitted with a 2.50 x 18" (usually referred to as WM4) with a 110/90 Avon (the old Super Venom) and it clears by about 1/8").
The thing to watch is that the Avon actually measures 118mm so the rim will definitely fit but watch your tyre choice if you go for 120 (or be prepared to use the disc sander ). My personal feeling is that the 110 sits better on the 2.5" rim.
I'm running a 100/90x18 on a WM3 (2.15") on the front and I'm happy with the combination.