1. The gearshift seems to be rather vague. Not at all like I'm used to. The reverse doesn't even seem to have a detent to prevent you from accidentally shifting into reverse. Is this normal?
That's not normal, but a SSK from any reliable source will take care of the issue.
2. The clutch engages right off the floor. Again, normal?
Mine does too. Early E34 M5s have a very "heavy" clutch.
3. The car was tight and handled well. Idled smooth, lots of power. Overall I liked it. The interior, while there were no rips and tears, but it was a little worn. Are most of the interior components standard E34?
Seats are unique. Leatherique is the key here.
4. The dog bones and some suspension components will need to be replaced, but that is no problem.
Standard wear items. Is SLS system still intact? If so, make sure to watch and replace the "bombs" when required. You don't want to blow the seals in the shocks if the bombs fail.
5. The current owner seems pretty knowledgeable on what is required to keep this car up and follows the required maintenance schedule. I think this is good
Engine rebuild: This can get very expensive when done right by an experienced S38 shop. On the other hand, it's a race motor detuned for street use, so overengineered for most people. Both my S38 motors have more miles than the one you are looking at and neither has required a rebuild.
Buy the car. Drive the snot out of it. Take it to the track. enjoy!