5K? dude you're dreaming. For like 2.5K, i could have the entire driveline replaced on my 328. a 328 motor is like 900$ complete. Tranny is 500$.
M3 is nice if you can stretch your budget, but most 328's are enthusiast owned, so lots of them have mods already.
You're basically paying whatever extra an m costs, half on appearance, half on performance. If you want both, buy the M. If you want just appearance, or just performance, its easy to make a 328 look like or perform like an M3 for less than the difference in price of the two cars.
If i were you, spend 5-6K on a clean 328is. Buy a manual, and if it has higher mileage, be 100% sure maintenance was done. My car has like 225K but it runs great even though i beat the piss out of it cause it gets good maintenance.
I run a canadian led kit & hid kit company, if you have any questions about led headlights or hid kits in canada or would like to check out our products please contact me here: http://absolutehid.ca
Hot: 2001 Estoril M RoadsterZCP 19's michelin PSS, ZHP knob, JL 8W3
Cold: 2002 TiAg M3 6mt
deoranged, dechromed, led tails, ZHP knob, UUC SS v3, GROM, OEM 18's w310's,
Fun: 2006 YZF-R6, black, ohlins, pazzo, BMC, cat delete, vance hines csone, YEC racing tune,-1 +2