I figured I'd post what's been done to the car to defend my thesis above.
I stumbled on my 318i sedan while looking for a decent 325is. For $800 I figured "why not?" I had a reliable e34 525i that I could fall back on if the M42 blew up...and the body was in great shape...so I could always swap in an M52B28 if I didn't like the M42. I had heard of the car's reputation, but I was skeptical. Happily, the rumors are all true...gem of a car, one of the best BMW has bolted together.
But first, it desperately needed a diff. Sounded like a gorilla was pounding out the rear subframe with an impact wrench wherever I drove it. The wife, lacking vision, was thoroughly unimpressed.
While looking for a decent used diff, I found a suitable 3.73. Problem was, it had a rusty 325is wrapped around it. I was hoping that the car could be salvaged, but it was far beyond my skills. Happily, the parts car had black leather sport seats too. That made a huge difference in the car...and I splurged $20 on a 'vert 3-spoke wheel. Total cost, $300. Wife began to see the car as slightly acceptable.
Secondly, it needed cruise control. I use that all the time. I'll bet I spent about $200 on that, including the bad actuator & Ebay e36 cable.
Other than changing fluids and adding a decent MP3 stereo ($120), that's been the total cost of owning the car. $1500 isn't bad for a year of ownership...so it's time for some upgrades...I splurged recently on a few gaskets to keep the oil in the motor. They'll be going in presently. I'll post some pics. This winter she'll get a half-shaft CV boot, possibly a rear wheel bearing & front suspension bushings too. Exhaust system looks ratty too, we'll see about that next year. Wife has now accepted the car, even drives it on occasion.
Where else can you get a car this rewarding for $120/month? I've paid three times as much for half the fun! I hope everyone keeps buying new BMWs...