M3 or not to M3, that is the question...
Most of the Beemer builders (myself included, but I'm still at the stripping stage, not the building stage) have plumped for a straight-6 325i out of an E30, thus keeping the whole project to a single donor. It's the KISS principle. Plus 170bhp in something that weighs less than half of the original car should be powerful enough (for me, at least!)
I dunno about mixing and matching, but I guess it could be done - the Beemer modifiers out there seem to swap engines about with little or no issues...
If you decide to go for The E30 only option, the M3 only has a 4 cyl engine, IIRC - they didn't move to 6 until the E36