I took my 91 318i (M42) from the stock 4.10 diff down to a 3.64. It make the car much more enjoyable to drive on the street because there was less shifting required and quieter on the highway. What I didn't expect is it became quicker to 60 (no more 2-3 shift) and actually more fun to autoX because I never run into the rev limiter or have to use 3rd gear anymore. With a 7200rpm limit, second gear can get me to almost 65mph. I think its the ideal ratio for this car although I wouldn't mind a 3.73LSD either.
Stock as it left the factory
As I have it now with slightly shorter 195/60 autoX tires. The graph doesn't go far enough but with a chip it revs to 7200rpm now.