I wish I had direct experience with an E36 3-series and an E46 M3, in order to round out my notes on both platforms.
Before I pontificate, let me preface my judgement by saying that I like luxury features. I love leather, high-quality interior materials and trim, and all the gadgets that come with luxury cars. Even though stuff like headlight washers are pretty much unnecessary where I live, I think they're one of those neat features that add to the value of an Audi or Bimmer or whatever else.
Still, I like to drive hard more than anything. And in my opinion, the E36 M3 delivers a driving experience heads and tails above the E46 330Ci. On paper, the numbers are pretty similar, but the numbers don't tell the story at all. Even thought the E36 is certianly older and supposedly less rigid, it doesn't come close to delivering the joy of driving.
Let's be fair, though. I've never driven an E46 M3, and I've never driven an E36 3-series. I don't know how an old 328, for example, would stack up against a new 325. I also don't know if the new M3 returns some of that driving magic to the E46 platform.
So yeah, in my opinion BMW took a step towards luxury in the E46. It makes perfect business sense. Ever driven an A4, C230, Acura TL/CL, or anything else in the class? The tendency is to emphasize driver comfort and convenience...not a sporty driving experience. I just hope that the new M retains the performance spirit of BMW. Again, I have no idea if it does, outside of magazine reviews that say it does.