Did the lights plug into some sort of 'light module' ? I was doing some checking, and both the headlights and taillights come through the light module thingy ( i forget what it is called) and the connections can go bad.
Also, the previous owner had some sort of jerry rigged circuit running up there under the glove box. it was jumped off the fuses in the trunk, and then run up there under the carpet. The wires were jumped off the hot side of the fuse, and run up under the GB.
It looked very 'un stock BMW ish'
This car was cheap and I LOVE the styling of e38's, but it has been a nightmare to get running!!!