I know the "6pot" swap would ruin the 318iS in the sense that it would no longer be a 318iS, but is there anything else wrong with it? I mean, if I'm committing to keeping this car, I wouldn't mind more power, even though I do find the m42 to be plenty of fun. If I'm doing any sort of engine replacement it'll probably just boil down to what I can do for a reasonable amount of money, and what sort of engine I can find. I don't see many m42's for sale and some of the other engines are quite a bit more common.
I have a guy that will do the work, whatever it ends up being, for $25 an hour. So because I've got that help I've got a little more freedom with what I do, but I still want it to be reasonably cost-effective.