Perfect thread. I am an avid RV'er and currently tow my Mercedes ML430 SUV. But I am thinking about creating the mount points to tow my 325Xi as well when a SUV is not needed. 2000 pounds lighter will be nice.
If you have a manual transmission car, there is no reason to pull drive shafts. If you have an auto, then pulling them is required unless you can configure a lube pump like I have in my Mercedes. They are made by Remco. But I guarantee they would not list one for the BMW. You would have to do some homework. The same GM transmission used in the E46 is used in a ton of other cars. Find this list, then start looking at that list for one that a lube pump is offered for. You will have to get a bit creative, but it is doable.
As far as the mounts on the front of the car, I have not begun to look at this yet. I would like to mount hidden mounting points that my Stow away tow bar will attach to. Plug in the mounts, hook up the bar, go. Then when all the mounts are removed the car looks unmolested. This will take some creative fabrication. I have a lift and a full fab/machine shop, so it will just take me time, when I find it. I was thinking about hiding the mounts behind the lower grille in the factory bumper. Pull the grill off to expose the mounting points. They are basically 1.5" square tubing that the mounts slide into and use a pin to secure. The wiring plug could be hidden there as well.
I think an E46 would make a great tow car. Or a Toad as they are called in the RV world, they go where they are towed....