Answer:

Many options are available:

Intake Bypass

The car runs hot water through the intake system - for very cold climates! You can take these out and connect them together, or run a new pipe from the front to the back of the block. (Idea from www.e30zone.co.uk)



BBTB

This gives a 17% increase in air flow at full throttle. Source from www.e30zone.co.uk shop



Big Bore Throttle Body on the left and the standard item on the right.

BTB 6 Branch



Not only looks stunning, sounds stunning but should release a few extra horses! Sal (M5pilot) on E30 Zone can help here, his group buys are much cheaper than buying direct from BTB.

ECU Chip



Zone wild chip gives a better throttle response flattening out any flat spots in the power and torque curves. Mild chip give more low down torque on a standard engine were as the wild chip is more suited to an engine with more tuning bits added such as the BBTB and 6 branch manifold - should result in more power at the top end of the scale.

Stand Alone Engine Management

Lots of options here such as Emrald, but the interesting one for us self builders is Mega Squirt. This is a true DIY engine management system. If your up to it you can build the from the components up, if you'd rather buy a ready built one that has been tested then have a chat with Ant on E30Zone he's the expert when it comes to running M20's on mega squirt.

The huge advantage is that you can drop the restrictive AFM from the intake. MS uses a MAP sensor. You can also drop the distributor cap and rotor arm and run a wasted spark set-up.

Your then also open to mapping the engine specifically to your modifications be they cam, manifold, capacity increase, forced induction or nitrous!

Cams

Aggressive Cams such as Dbilas dynamic 282°/272° cam shaft and up rated Schrick valve springs can be added. They tend to move the power up the rev range so you loose a bit of torque at the bottom (to compensate this we're planning a  2.8 conversion - see later on in document!). A 272°/272° should be fine for adding some power, but not loosing much if anything from the bottom end.

More capacity!

It is quite common to rebuild M20 to 2.7ltrs using a 2.5 block, crank for an eta engine, conrods from the 2.0ltr. This does require the block to be skimmed and a vernier pulley to adjust the timing. Lots of info here if you can read German: http://www.e30.de/ in the "Motoren" -> "M20" section.

The second, as much easier option would be to build a 2.8 using an M52B28 crank and M20B20 conrods. This is pretty much a plug and play job as you don't need to skim the block or use a pulley. The only thing you do need to do is make a spacer for the front oil seal. But you can use spacer / bolt from the M52 and get a machine shop to skim it down for you. Shouldn't cost more than £20.

Parts:

M52B28 crank

M20B20 conrods

We'll get some pictures up of the 2.8 option as this is what we're going to do to the Sportster engine!

Forced Induction

Increasingly more popular among the E30 enthusiast is turbo or super charging. Not sure if there's enough room in the Sportster engine bay for such antics though! There's a force induction section on e30zone and e30tech

Nitrous Injection

For short burst of extra power nitrous oxide aught to be a a laugh and plenty of space in the engine bay for that. Have a look at http://www.noswizard.com/ - these guys seem to know what their doing! My initial research suggest direct port injection and progressive control triggered either from the TPS or throttle pedal seems to be a good way to go!