I have considered replacing the rear end with a
Ford 8.8. I decided to keep with the M3 end of things initially. The shops I work with (Fields BMW in Lakeland, Fl), and (of all places) a local AAMCO shop can work on the car if it's not too much of a unicorn. (Much less for me to keep track of if it's 'mostly' BMW with a Chevrolet drivetrain.)
I have a couple of e46's - If I find a Ford 8.8 is needed (crunch the M3 diff or a driveshaft), I'll execute on moving to the Ford 8.8 at that time. It'll (hopefully) give me time to get all the other non-critical items completely replaced--> The interior leather and carpet (while not trashed) could use a refresh, and the paint (while not horrible) does have seventeen years worth of rock chips, and at least one portion was re-sprayed previously (overspray on the rubber seal around the tonneau cover as a tell-tale). I figured I'd start with the mechanical items, get that completely right, get the interior done, then get it re-sprayed.
If I get all the way through the car (paint, interior, and anything else that pops up along the way), and the diff and axles survive, I most likely will do the Ford 8.8 anyway, and transfer the M3 rear end to my '00 323Ci 'vert when it gets pulled (that car already has a diff from a 08 Z4 3.0Si - it's already got the 3.62 or 3.64 ratio (can't remember the ratio offhand)---> best modification I've done to the automatic transmission car).
When I got the car getting the swap, I put a M54B25 back in it (bought it with a blown head due to overheating) so I could move it around and get the major mechanical addressed (all completed before dropping it off to get the swap). I also used it as training to teach both my sons to drive a stick-shift.
The swapped car won't see alot of use, and only see the dragstrip occasionally; I'm not rough on cars, so I'm not expecting the diff to die an early death (The AAMCO shop pulled the diff out of the carrier, and I swapped it for a reman unit from diffsonline; the diff itsself will be 'like new').
If it eats the axles/output shafts, I know they sell 1000Hp rated replacements. I didn't replace the axles for that very reason - Left them (somewhat) crusty on the outside (you can't see them). I powdercoated the diff carrier and rear trailing arms because I don't want to pull either of those back off if I can't help it.
It's taking alot longer than I thought it would (what project doesn't, though), but I'd rather have it 'right' than 'right now'. I know the parts from ICT Billet, Vorshlag, and other vendors are done in small batches-->sometimes made to order, so there is alot of 'hurry up and wait'. While I am waiting, I am gathering all the other _things_ that I know can/should be done - headlight bixenon HID update, sway bars (still on backorder since November!), wider rims and better tires so far. I've also done some tinkering with my other 'vert - new mirrors due to accidentally pulling off one of the mirror covers when it caught on my beltloop, and I'm eyeballing puddle lights just because I think it'd modernize the car further.
It's a 'project car', and no project is ever really, fully completed (I've dug the financial hole half way to Germany, I might as well keep digging...). Post Ford 8.8, a procharger may even be in it's future. It'd be a hoot to take it to the dragstrip, and have it beat down the Corvette in a dragrace.
Dan B