You can make a 2.5L E46 handle well,
and look pretty - but not fast by any means.
Coilovers, wheels, 3.38 diff (assuming its manual). Those are your best bets to get the most out of it without spending more than what the car is worth.
Imola Red / Imola Red ///M5
E60 SSK, Dice iPod, Illuminated ZHP knob, MKIV, Euro Armrest, GT ExhaustDaily:
BCR Coilovers, 19x10 + 19x11 Rial Daytona Race, Michelin Pilot Super Sport
'04 E55 AMG Brilliant Silver on Anthracite
'96 318i Alpine White on Black
'01 330Ci Titanium Silver on Coral Red
'96 328i Jet Black on Black