Only prob I see is that it's an eta. Back in the day, BMW was looking for ways to improve fuel economy, and as a "stop-gap" measure, they decided to do that by restricting the rev range of the M20. Milder cam, softer valve springs, etc.
Still, the rest of the car seems clean enough that you can just coast with it as a DD until you're ready to figure out what you'll do about an engine.
Take my comments with a grain of salt..I owned an E21 "grey market" 323i at the time those cars came on the market, knew what a standard M20 could do, and hated the eta for what it did to that little jewel of an engine. Still amazes me that they also put the thing into the 5-series back then as well. I guess the whole "yuppie" thing was going on at the time, and they could sell every car they could ship over here.
This will give you a laugh..when we lived in our last apartment, one of our neighbors had one of the cleanest E28s I've seen in the last 10 years. He wanted to sell it, and asked $1300. I skipped it because the damn thing had an eta/slusbox combo driveline in it. 
IIRC, if you want to keep the eta, build what the hot rod guys call a "stroker". The eta M20 is as strong on the bottom end as any of her higher revving sisters, and if you don't want to spend cubic dollars on a head re-configuration, increase the piston stroke on the bottom end, and just leave the redline where it is. I've seen some etas stroked out to as much as 2.7ltr (IIRC, some of them used the diesel M20 rods), and they sure honk off the line.
EDIT: Forgot that it was only 400 bux! Good shot, dude.
EDIT 2: I gotta stop hanging around you guys so much, I was doing fine being an "ex-BMW" guy until I found this place...
