The '88 325is is a great car.
the 325is would have come from the factory with
3.73 Limited Slip
M-tech 3 spoke steering wheel
Recaro sport seats
rear trunk spoiler and different front air dam
thicker front and rear sway bars
Springs were a bit stiffer than stock
I would really recommend going through the whole suspension and figure that all of the bushings are going to be pretty well worn. The hardest bits are the rear subframe bushings and the rear bearings. Also, do not use the stock E30 upper rear shock mounts. Upgrade to the E46 units (drop in) with Z3 reinforcement collars.
Pull the valve cover and check the head bolts. If they are hex heads, replace them with the updated Torx bolts. (You can change them one at a time) Also, figure on replacing both the timing belt and the water pump at the same time.
Head work, a Shrick 272 cam, headers, 535i injectors + MAF with a custom chip will make the M20 a very fun little motor.
Check out some of my articles here on Pelican..
http://www.pelicanparts.com/bmw/techarticles/tech_main.htm