The only worthwhile mods are a chip and a lighter flywheel at that price range.
- Cams are expensive and you MUST get a custom chip tuned to make any benefit. That tune will add another $1000 of cost.
- Injectors...NO. The stock ones are the only ones that you should be using. The ECU is programmed for those, and putting in other ones is useless. NO GAINS will come from putting in different injectors since the engine gets plenty of fuel with the stock ones (they are good for ~180bHP). Different injectors will lose you power and hurt fuel economy.
- You get what you pay for with chips. Buy a REAL Jim Conforti or MarkD chip, or don't bother. It is ~$250 that is totally worth it.
- Stock exhaust is good. As long as the catalyst is not broken and clogged, you are fine. There are many nice sounding mufflers out there, but you will not get any power from a different muffler. Putting bigger pipes on will also hurt your low- and mid-range torque on a stock engine.
- Do not change or enlarge the throttle body. No gains, only low- and mid-range torque loss. And probably a vacuum leak if you try to enlarge the bore.
- A lighter flywheel IS worth the effort. You can convert to a stock 1989-1991 325i/iS/iC clutch and flywheel at pretty low cost. It MUST be 1989 or newer and be from the M20B25. The swap requires: M20B25 flywheel, M20B25 starter (or just the pinion gear), M20B25 clutch parts (ToB, disc, PP), M20B25 flywheel bolts, the steel ring from your original M42 flywheel (used as spacer between M20 flywheel and crank). The complete M20 clutch/flywheel assembly is ~2kg lighter than the stock M42 assembly, BUT the mass is much closer to the center of rotation (not around the outside) so it makes a BIG difference.
Also, do not bother with intakes. I have a 205bHP 2.1L M42 in my car and it pulls fine with the stock air intake box. I will be installing a bigger M30 air box and MAF sensor, but I will also be going to a dyno for custom tuning and this engine actually pulls enough air to need a bigger air filter. A stock engine does not need this.
The hardest thing for new, enthusiastic owners of this car is accepting that BMW already tuned the stock M42 engine 95% of the way to its maximum potential (EXCEPT for the ECU chip, they purposely de-tuned it so that it would be much slower than the 325i because they wanted to sell that more expensive model). These cars cost more in 1991 than many new cars cost today! People pay so much for a BMW because they want a car that already has amazing engineering done on it. If installing cheap junk yard parts could easily improve these cars...that would be quite sad. The stock engine makes reasonable power, gets good fuel economy and has a well balanced power curve. To really make a lot more power with this engine, you need to start changing the bore size, stroke length, compression, cams, head ports and valve sizes. Basically, you need to build it into a completely different engine if you want a more powerful one that is as well balanced as the original. It is very expensive!