I think there's good arguments for and against keeping the m42. I'm at the stage where with a mint car I'd like to do an engine rebuild, regardless of if for performance or for reliability. my 2.1 will hopefully do both.
talking about an s50 swap is not comparing like with like. over here you can get an s50b30 with all the bits for around £1,000-£1500, mb a bit more depending how good an example etc. What you'll get is a 10+ yr old engine having done 100,000 miles or so, probably with no verification of mileage and history etc., and quite likely it will have been in an accident. These engines also have a habit of spinning shells etc and going through bottom ends, not to mention other costly bits. they're hardly fragile, but after 10 years, many are worse for wear. then there's questions of props/diffs/gearboxes etc to suit - keeping the m42 stuff is hardly going to be the best for reliability, new clutch, coding plugs and electrics, suspension etc. over here, £3k would be around the mark for the conversion all said and done, without actually rebuilding the engine.
so instead I've spent around £2,000 and got full standalone management, a high compression 2.1 bottom end and ITBs. this should give over 200bhp, and has the benefits of fitting the car like it was made for it - because it was. its also a brand new engine, will have new clutch, timing chain, seals, bearings etc etc. It should be perfectly reliable - i cant see a pre-OBD2 era BMW performance engine being more reliable than an m42 rebuilt with all new components.
also like most people on here, i'm all about the m42. its a great fun engine, mb not the fastest engine in the world, but i enjoy 4 pot screamers, and the car handles pretty nicely, extra kgs past the front axle will not do the car any favours. i was considering putting in an s14, but i figure my mods should give similar performance - mb not quite as fast, but has the benefit of being fully rebuilt, a lot more unique, more compact, sitting further back in the engine bay, having oil squirters and adj. cam sprockets, a coilpack, standalone management etc.
Also i've just always fancied modding the m42, and this project has been much more satisfying and challenging so far than shoehorning in an s50.
i hope that gives some idea of my motives, i'd hate to ruin the character of my car, and although i considered an m50/2 engine for quite a while, and in the real world such an engine will be easily as fast as what i've done and cost a bit less, there are certainly other considerations.