This really sucks considering that I am going to Scottsdale AZ in May and
> don't have the funds to replace the head at the moment. Scottsdale gets to
> about 110 to 115 in the Summer so I am sure to destroy the car by that
> time. I figure I will just drive it and pray until I get the funds to do
> something about it. If I do this, I am sure I will be able to afford an
> engine from the junkyard by October. An 'M' series engine would be nice.
> What mods do I need to do in order ot have it work?
My advice: If it looks like you're going to have to do a rebuild - don't do it.
Instead, call around to local junkyards (especially ones without computer inventories) and find a wrecked BMW with a low-ish mileage engine, especially one that you can start and run before buying (though they'll charge a bit more for such an engine, of course). You can probably get the whole junked car (minus any resellable window glass) for way less than half of the cost of a rebuilt engine. If the junker is an E36, you might even be able to snag some spares or swap some parts - carpet, seats, windows, stereo, ECU, wheels, tires, battery, exhaust, etc. I did this with an old Mk I VW Golf GTi. I pulled a complete blue interior from the totalled VW to replace the mildewed and ugly burgundy one in my "racing" GTi, plus four alloy wheels and tires. I had pre-negotiated a cash price of $100 for everything I could pull off the car - they didn't care. They were gonna crush it.
Engine swapping requires an engine hoist; but they're not expensive to buy. You can probably have the guys at the junkyard pull the motor for you and drop it (carefully) into a waiting pickup bed for hauling to your shop. If you don't have suitable work space, talk to a local friendly garage owner about renting after-hours shop time. Sometimes they'll do it. Of course, better yet would be to talk a local mechanic into doing the work for you after hours, for cash of course.
Think of it as an automotive adventure...
R