It would be easy to inject and turbo the M10 engine. I would recommend getting an intake manifold from a 84-85 318i. BMW did make a 1974 2002 TURBO car, it had mechanical injection and I believe a KKK turbo, but I may be wrong.
http://www.sdsefi.com/ That website had a fairly good priced aftermarket injection system that will handle a turbo or supercharger boost up to 15psi I think. Comes with wiring harness and the mass air sensor I think... and they can make a package deal that will have all the other sensors if you need them.
I plan to take my '84 318i parts car and put a trubo charged M10 2.0 engine into it, just like what you want to do with your 320i. If you decide to stick with teh stock compression you will only be able to run like 5-7psi boost, or you can get a set of custom pistons from ireland engineering and lower the compression to allow greater boost.
Its very possible and I think it will be easy to turbo an M10 engine. I think it would be worth it. My 318i's weighed 350 pounds less then my '87 325. Thats why I am going to modify a 4 cylinder engine instead of the cast iron 6 cylinder, lighter the better.
If you do not want to go with a turbo and fuel injection you can get an intake manifold of an older bmw 1800 with dual carburators and build a nice M10 that way.. would be cheaper but I like the sound of a turbo.
Later
Aaron