Taken from another post to create a how-to.
The seals in the rack go due to wear, using powersteering fluid, and age.
Apparently a ton of e30's are all getting them replaced right now, so wear and age is likely a big part of it.
Powersteering fluid does not apear to harm the pump, though I would not stake my pump on it. It will eat your seals, as will power steering leak stop. Mor eor less, I would not trust anything other than Dexron Mercon ATF or the BMW equivalent.
Note*
While the install seems oversimplified, it really is not. It is very straightforward.
To repair it, you have serveral options.
An e36 rack works, as does an z3, both do require some mods. Not sure how much though, I think Pelican has a how-to.
An e30 M3 rack bolts in, but is EXPENSIVE!
You can also buy a rebuld kit for $60.
Reman'd racks run from about $200 to over $500 for a 318IS. So be sure to shop around!
To change it out (easy and fast job really)
I bought a remanufactured rack from discountsteering.com With a return shipping box, core charge and 2 day shipping, it was a bit over $300. Core was $50, so well under $300 and these are Sachs racks, very nice. The only bad thing is the packaging could be better, but then again, it got here fine, so I guess I cannot say much.
Rebuilding is fine, but I looked at it like this, it it is worth the money to be able to put it in and know it will work, as opposed to spending $60, put it together, put it in, only to find I damaged a seal.
I recomend buying 2 new tie rod ends (the tie rods are included with the rack, just not the ends).
A pickle fork, and about 3 hours is about what you need to install a new rack. 2 people make it easier.
I propped the front up on stands, popped the tie rod ends, loosened the rack (do this first or you will be working in fluid), then teh collumn, (try to keep the wheel straight), then remove the lines. Finally remove the rack itself. A twist and then slide to the right (of the car) allows it to fall out.
Before you do anything, get the setup as straight as possible and measure from the center of one end tie rod end to the other (on the back side). Now remove the collars, put them on the new rack, then the tie rods (try to get the pointing same direction as before, look at the car if needed), measure, tighten.
Put a bit of fluid in the pump to flush it out. Have a catch can handy. Run some fluid through a paper towl to ensure there is no metal coming from the pump. Rack warranties are void if you do not do this. If there is metal, replace the pump.
Put the front end back together rack in loosely (watch the lines so they are not damaged), install lines, then tighten rack in place with some locktite. hook up tie rod ends, make sure the boots are straight. Hookup steering, eyeball it straight, install bolt. Take it for a quick drive to center the wheel (place tape on the wheel vertically, while the front wheels are straight this way when you park you will know when the wheels are straight), remove steering bolt, re-center wheel, install bolt with locktite.
Done.
If you are good, no alignment necessary, though this is not recomended. I got away with it.