I have no first-person experience with building an M42 on the cheap, so feel free to tell me to take a hike. This isn't a great car to start with if you really want to go fast. Cheapest way to do that is with an M52 probably. I've gotten about 10% more performance out of my motor just by running the mods I have listed in my sig (4-hole Ford injectors, high-quality/low viscosity synthetic lubes, thinner coolant mix, P/S & A/C delete, throttle heater delete, silicone rubber vac hoses, COP plate. You could go a lot further than I have with an electric radiator fan, lightened flywheel, shorter diff ratio, smaller circumference tires, etc..
But...did you check out Warsteiner's recipe yet?
Here's a link.Compression Height of Stock S50 Piston is 32.8mm with Honda 1.8L VTEC B18C (GSR) 138mm rod
. I know these parts aren't all that cheap but they're cheaper than custom parts by a long shot. It's a known and tested combination. IIRC he used an M47 crank (Euro-only diesel motor), so your mileage may vary with these parts.
Stalk R3v for someone that's blown up their S50, and there are probably a bunch of guys around with spare GS-R rods. You'll still need to do a good bit of machining, I guess that's the nature of the beast. There is some brilliant stuff in there, I promise. All for free! I'm buying Warsteiner a beer if I ever tear into my spare motor.