After owning an E36 318i S i can definitely say that it really is a great motor, not massive amounts of power, but it just feels so right, although a sixth gear would be nice for motorway cruising, 4k rpm at 80 isn't that quiet. Mine had 190k on the clock and it still ran smooth as silk. One thing i will say is please for the love of god don't buy a compact, the arse on those things is so high it makes me cry every time i see one.
Edit: This is assuming the e46 has the same engine and box, which is probably a huge mistake. And also be prepared for steep repair bills, bmw parts are not cheap.
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P.s Sunnybadger, your motor is a far cry from that beautiful rover you used to own. I'm not sure which i prefer.