Anway, the E36 M3 should't be unstable and uninspiring. Car and driver voted it the best handling car regardless of price when it first came out. As you said they are getting on a bit so you have to budget for a complete suspension overhaul. I'd be much more tempted to fit a set of coil-overs and bushes all round before I thought about the engine. What were you're plans suspension wise?
I know it feels like we are spending a lot on these cars, and it is a lot of money. However, for the performance they offer I think they are a bit of a bargain.