Dude, that is SO not heresy. It's not like you're tossing an LS1 in there! That's exactly what BMW would have done if they had a budget in the mid '60s. Once they had some money to play with later on...the '02 rapidly got sportier...the ti, tii and turbo all showed more of where they wanted to take BMW. The M10 is a great motor (especially once it's 'squirted with the e21 bits), but the Bosch systems on the M42 are a dramatic improvement to the '02's finicky Kugelfischer mechanical FI or a dual carb setup as far as tractability, emissions and all-round reliability.
On a related note, a personal ambition of mine is to update a 2000cs with an M42. Perfect four-cyl balance with that quirky duck-tail and psychedelic front end would be ideal. It'd need some updated e36 electronics too!