Sorry if I repeat some of what is said above, but I just skimmed through.
As someone said you can do an e to i conversion. What you end up with (by changing head, pistons, and a few other bits - basically you only use the 2.7 block and conrods) is a 2.7l m20 that flows like a 325 but with more displacement. Since you are essentially doing a full rebuild, how about beefing up the internals and lowering the compression for a turbo setup while you are there? unfortunately this is where costs skyrocket. Stock m20 internals will handle around 13psi or so - beef them up and skys the limit within reason. But its alot of work, you'll need turbo headers and exhaust - tons of fabrication, custom intake, intercooler (hard to fit one in, but possible), custom engine management, fuel pumps, lines and injectors and the list goes on.
You are lucky in one respect being LHD the steering linkage is on that side. Friends of mine have to try and fit their turbo and manifold around this as we are RHD.
Here's a pic of a mates 318is turbo(not m20 motor, but similar idea)
Link
Or if you don't like this idea and want to stay BMW then you could do an m50 or m52 swap, but then you run into the problem of bang for buck - if you are doing that kind of work you may as well go s50. But then you want to source an euro s50 as you poor old yanks only get the US version which is, shall we say, a bit lacking on the one the rest of the world got.
Other popular swaps include mazda 13b rotary swaps, nissan sr20det and rb25det, and some toyota swaps. There are even some lexus V8 and BMW V12 swaps floating around (including one in my local club - lexus v8).
So, what do you think?