Dan has an M10, not an M42.
If learning is your main goal, then using an M20 in a 325i/is would be perfect. It is a relatively simple engine to work on, and offers great power and torque right out the box.
That said, if you want power to be made, I'd rather buy a 318is and swap in an M50 from an E36. The engine has a lot more potential, most notably the 4-valve head design. The M20 is handicapped by it's ancient head design.
Then again, if you do the M50-318is route, you'd even learn about hybrids too.