Slicktop 318is for $450? That's cheap!!
I have a '91 318is as well that I am preparing to swap engines in. The m42 4 cylinder is great but there's nothing special about it. Mine has 280k on it and I was going to replace the timing chain and components (sprockets, guides, etc) and also reseal it (head gasket, profile gasket, timing case gaskets) but the parts alone will cost you at least $800. Not worth it in my opinion when you consider the rest of the engine will still have 280k worth of wear on it.
I don't know much about the 2.0L turbo engine but it will have a lot of electronics on it that will be difficult to adapt to the e30. I bought an m52 2.8L out of a Z3. It's a single vanos aluminum engine that was only used in the z3 for '97-98. M52s are very easy to swap into the e30. I expect around 200hp out of mine with tune and an m50 intake manifold. I could get more with s52 cams.
Also, check out Jordan Sarette's thread over on r3vlimited. He used an m54 3.0L which is also aluminum. These engines are a little more difficult to swap into an e30 but they are gaining popularity. He's done simple mods to his (tune and exhaust) and estimates around 250hp. http://www.r3vlimited.com/board/showthread.php?t=366843
If your m42 is still in running condition, the turbo kit mentioned in this thread would be really cool too.