loki said:SMG or 6speed? There are certain methods that work on each car...
For SMGII equipped e46 M3s, this is what I've found that works, you will have to run the car twice in a row to dyno it correctly... I've not yet tried to see if you can avoid dynoing the first time and just get by by starting and turning off the engine to avoid unnecessary heatsoaking.
1) insert key into ignition, turn to accessory
2) press DSC button for 10 secs
3) start car and begin dyno process
4) when the car enters the upper rev range, the tach lights will illuminate and the engine will cut out at 6500rpm
5) spin down and shut off the car leaving the key in the ignition
6) turn to accessory
7) press DSC button for 10secs
8) start car and begin dyno process, when entering the upper rev range the tach lights will NOT illuminate and the car will not rev to redline should you so desire.
Note: your car will display a "check engine light" after this process, recording traction control errors. 3rd and 5th gears are the most commonly used ones for dynoing.
If anyone would like to see if you could avoid step #4 and post results, I'll update the FAQ. For the fuse pulling process, you can click my sig.