I have often heard that this problem doesn't apply in Australia but I have serious doubts whether that is true.
One person I spoke to had worked as a mechanic at a BMW dealer in Sydney for a long time and had first hand experience with problems with M52 engines when these first appeared in local 3 and 5 series models. He told me that they replaced many M52 engine blocks under warranty, and some cars needed multiple replacement blocks. This came up as a result of me saying that I was looking to buy an E36 or E46 323i at the time, and his advice was to stay well clear as even models with the replacement block could not be trusted.
What I don't know is whether the replacement blocks provided by BMW Australia were just the same Nikasil lined blocks or something different like Alusil lined or cast iron blocks.
Quite a few years later when I had an E36 323i, which had been in an accident and which I had bought for parts, I spoke to a mechanic who worked for an independant BMW and European car specialist workshop and was well aware of problems with the M52 engine. He believed that the problem with these engines could be due to bore glazing, and that a lot of BMW owner's don't drive their cars the way they were intended. I know most of the BMW owner's manuals I have read have said that you should run the engine over 4,000rpm regularly to keep the engine in good shape.
The M52-powered 323i I owned briefly did blow a lot of blue smoke, which means that it was burning oil, but unfortunately I never found out the cause. In addition to the problems I mentioned, there are other common causes for oil consumption on these engines that are a lot less serious and less expensive to fix.
Would I buy an M52 powered BMW? I would probably avoid it unless it was a car I really wanted, and then a pre-purchase compression test would probably be money well spent.
Update: I understand that models after 1999 had blocks fitted with iron liners (possibly as part of the M52TU update). I believe these are better but still have some issues. Further research is required.
Update 2: BMW technical instruction document no. 11 06 97 (255) refers to the problem with these engines and instructs dealers to replace affected engines with an exchange engine with cast iron block. Due to the increased weight the front springs and rear brake calipers, pads and rotors are replaced at the same time.
Cylinder lining wear
E36, E38, E39 / M52 ECE
Situation: Depending on the fuel composition, premature wear of the cylinder linings and piston rings may occur on the vehicles listed below.
Effect: Cylinder lining wear can also result in reduced compression, uneven idling, loss of power and excessive oil consumption.
Affected vehicles: E36, E38, E39 with M52 Nikasil engine (= ECE without option 961)
Manufacturing period: Sept. 1, 1995 to June 30, 1996
Action: In the event of a customer complaint the following actions should be taken:
M52 B28 and B25:[/B] Installation of a cast iron exchange engine.
Besides the exchange of the engine, the following vehicle-specific modifications must be made:
E36 saloon, coupe: DME data, if necessary front suspension springs, rear brakes
E36 touring, convertible: DME data, if necessary front suspension springs
E38, E39: DME data, if necessary front suspension springs
M52 B20: Installation of a Nikasil exchange engine.
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