Water in the heater box always a bad sign. Blown heater matrix or blocked drains. Check those out when you change the engine disolver (tap water) for real coolant. Reverse flush the heater, hoses off.
Good - Fast - Cheap: Pick any two.
E23 735i; E32 735iL (X 2 - 1 Alpine White and 1 Glacier Blue); E34 535i; E38 735iL; R50 Cooper; R55 Cooper Clubman.
E21 318i; E30 318i; E32 735iL; E34 535i; E38 730iL; E53 4.4i