I'm not sure if your M50 motor is out of the car yet, but if not, you may be able to get it through the BAR process. Poking around Bimmerforums, and people seem to have gotten through CA smog with Schrick cams on their e36 m3's, but the results seem to vary. As mentioned, getting it running right with the proper chip/software is probably the first step. After that, it's a matter of having stock exhaust manifolds, CA legal e36 M50 cats, and making sure the exhaust routing matches the donor car (in this case the 2 downpipes merge into 1 for the o2 sensor, then back to 2 pipes into the cats). I went through Skyline college and had good results, but other refs have been said to be much stricter, so just something to consider.
If you want to try and get an OBD2 S52 BAR'd, this guy seems to have done so: http://www.r3vlimited.com/board/showthread.php?t=282409
If you want to try and get an OBD2 S52 BAR'd, this guy seems to have done so: http://www.r3vlimited.com/board/showthread.php?t=282409
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