I wouldn't do it...unless. The M42 is just as powerful and IMHO far more fun to drive. It's also a lot rarer than the 325e. The big bumpers are a real turn off on the earlier cars. Unless it's a manual transmission 325eS with intact spoilers, I'd pass.
OTOH, the M20 eta has great torque. It's a lovely car to drive in traffic with that big lazy motor. You could use the cash to rebuild it into a 327i with some selected parts. M20 motors are also incredibly durable, except for the timing belt.