I was going to add a quick little write-up to my profile thread, but I think this would be as good a thread as any.

With the key turned to accessories, turn the temperature control knob from the extreme anti-clockwise position and after approximately 20 degrees of rotation you should hear the heater solenoid (#16) click. If you do, start the car and let it warm up.
http://bmwfans.info/parts-catalog/E30-2-doors/USA/318is-M42/L-M/jul1990/browse/heater_and_air_conditioning/heater_radiator_blower/Pop your hood open and look for the thermostat Dave mentioned. It's number 8 in the illustration linked below and located between the engine and firewall. As the car heats up feel the difference in heat between hoses #6 and #9.
http://bmwfans.info/parts-catalog/E30-2-doors/USA/318is-M42/L-M/jul1990/browse/heater_and_air_conditioning/additional_thermostat_water_hose/I used an IR thermometer first on hose #6...

...and then on #9 which is the inlet to the heater core and passes through the heater valve.
NOTE: I realized when posting this picture that the laser dot is actually on the outlet hose of the heater core, but the results are the same: the thermostat is stuck in position and not allowing hot coolant to pass through the core.

I removed the thermostat and proceeded with the cheapest and quickest repair option: look down into the thermostat and note the very center "circle." I used a drill bit slightly larger and drilled down into the center just past the flat surface.

In this picture you can see a slot in the brass "sleeve"...

I took a hook and worked the "sleeve" out of the bore...

Until it was all the way out...

With the thermostat reinstalled, I placed a thermometer in the center outlet and noted my starting temperature...

Nine minutes later...

Five minutes later it topped out at 50 degrees centigrade. I'd say I was successful.