The original 3-speed automatic transmission coupled to the torquey eta engine was not a bad combination except for the lack of top end HP. And lack of gears. I changed it into the car BMW shoulda' woulda' made. It all started in 2006...
The first order of business was converting to a 5-speed manual. For the conversion I took most parts from an '84 325e
The driveshaft came from a manual '88 528e. I got the tranny crossmember and shifter boot new from the dealer (both are cheap items). I used a random spring I found in my toolbox to help the clutch pedal come all the way up. And to hold the rear of the shift console up I bent a piece of sheet metal, drilled a bolt hole, rivetted it up in the tunnel, and fastened it to the console with a rubber donut in between.
I replaced the 2.93:1 open differential with a 3.73:1 limtted-slip from a 325is. The only hang-up was that my old diff had not only the early style centered mount, but the cover was slightly longer on the bottom. Rather than risk oil leaks I bought another ('83-'84 I think) e28 cover to put on the new diff.
At the same time I completed the 5-speed swap, I also installed a new engine. It had a 325i cylinder head, intake manifold, and throttle body (plus associated plumbing). Connecting the ICV (in the old location) involves some hacked hoses and tape :) The engine also has custom ROSS pistons which are the same volcano shape (dish within a dome) as stock 325i pistons but with added compression height (1.5mm IIRC) and 0.5mm overbore. For a short time I ran OBX headers but the exhaust shop that installed them did a half-assed job. The O2 sensor was located on one branch and the pipes joined into a single 2". I began experimenting with exhaust options and eventually went with 325i exhaust manifolds, e34 525i downpipes welded to an aftermarket cat, ending with a 533i rear muffler.
I made two changes to the fuel injection: a 3.0bar pressure regulator and a modified EPROM for my 007 Motronic box
I wrote up a page with some info on the early motronic but I was ultimately unable to figure out how to get past certain limitations or fully understand the changes in the DINAN chip.
Tests on a chassis dynamometer showed the air/fuel ratio leaning out at full power, and rapid loss of torque after 5K RPM. This setup also had an annoying dead spot at 2K RPM due to lean AFRs. Later, I converted to Megasquirt
The setup achieved 21-27mpg which was pretty much the same as original