1.) Short Block (Bottom End)
WARNING: The procedure described may not be complete. Certain steps and parts (seals, bolts, gears, hoses, etc) may have been omitted, so therefore the assistance of a professional is highly recommended to ensure that certain steps are not overlooked. Furthermore, what works for me may not work for others. As always, I am not liable for any damage that may occur to your car as a result of this.
The first thing that must be modified is the bottom block, since that is where the heart of the conversion lies. But instead of pulling the engine out of your car and wrecklessly tearing it down in your garage, perhaps the easiest thing to do is pick up a spare 325e short block (with pistons, connecting rods, and crankshaft) and build the 2.8 from there. 325e short blocks (or complete motors, for that matter) are a dime a dozen and often go for a few hundred bucks or less. I actually picked up a short block for free. Using another short block also allows you to continue driving your E30 while building the motor, which is a good thing if you only have one car (like me). But if you have a spare car to drive, then do whatever works best for you.
For all you do-it-yourselfers out there, boring and honing the block is not something that can be done in your backyard using sandpaper and a Dremel from Home Depot. Instead, you want to send it to a reputable machine shop and have them bore it out. What I did first was order a set of 10.0:1 compression, 85mm bore pistons from Top End Performance in North Hollywood, California, then waited 3 weeks for them to arrive. Once they came, I took the bare short block, pistons, main bearings and connecting rod bearings and dropped all of it off at my machinst, Terry Tinney of Performance Motors in Livermore, California. The reason why I waited for the pistons to arrive before proceeding with the machine work was because I preferred to have the block bored with the pistons available as a reference due to varying tolerances. Better safe than sorry.
I also gave Terry a forged crankshaft from an '85 524td to install. The 524td crank has the exact same stroke as the 325e crank (81mm), but is forged instead of cast so it is stronger. It is not necessary for the conversion because contrary to popular belief, 325e cranks are fairly strong themselves and will withstand revs to at least 6500 RPM. I found a td crank for sale pretty cheap (thanks to Tom Walrod) so I decided to throw it on anyway.
I actually ran into a problem with the pistons because once installed they were 3.5mm too short from top dead center. Top End said to use 325i connecting rods, but when Terry tried that the pistons sat 3mm too tall, so it was actually the pistons that were the problem. I considered some radical solutions like shaving the block, but in the end I realized that I had to order another set. Fortunately, Steve at Top End was very helpful and agreed to accept the pistons and make a new set at no charge.
Now sit back, relax, and wait for the machine shop to do the dirty work :).
Once I received the block back from Terry, who was cool enough to paint it black and install new 45mm freeze plugs, I put it on an engine stand then installed the lower crankshaft seals (thanks to Marvin Ancheta for the great pics!):
To get the seals into the lower cover, simply tap them in with a hammer, then liberally apply grease in the center of them. Use a gasket sealant to apply the gasket onto the cover, then place it on the block and tighten the four 13mm bolts. If your oil pump is bad, or if you suspect that it is going out, now is definitely the time to change it. Remove the four 10mm bolts then carefully take out the two main gears and inspect them for damage. If they look okay, put everything back together then mount it to the block using the three 13mm bolts. Torque them down to 16 lb-ft. (But if you find that the gears are consistently scored, better get some new ones. The part number is 11-41-1-280-880 for the smaller gear and 11-41-1-267-796 for the larger one.)
The rear crankshaft seal should have been put on before the block was added to the engine stand, but I forgot to do that so I had to lift the engine with a cherry picker. Again, tap it in with a hammer so it is completely flush with the cover, add gasket sealant to the metal gasket, then put everything together on the block and tighten them down to 16 lb-ft.
If the oil pan, exhaust manifolds, or engine mount supports look somewhat grimy, you should clean it off if you haven't already done so. Better yet, you can repaint them to give a fresh appearance:
To install the oil pan gasket, take the gasket sealant and again, liberally apply it on the bottom edge of the engine block then place the oil pan gasket over it (it only fits one way). If you accidentally misplace it, quickly readjust it before it dries. Apply some more sealant to the other side of the gasket (now facing you), then place the oil pan over it. (It may help to flip the engine around the stand to do this.) Drop some bolts in to hold the pan in place, then torque them all down to 7-8 lb-ft. You'll want to loosely attach each bolt as you go around the pan and gradually tighten the bolts as you go along. Be careful not to overtighten them because if you do, the gasket will break and you'll have to do the job over again.
The oil level float simply attaches onto the top of the oil pan by tightening the 10mm bolts to 14 lb-ft. There is a rubber o-ring that goes inside that should have been changed and greased. The dipstick housing actually goes into the block without any screws, bolts, or nuts. Imagine that! But add some sealant on the bottom of the housing (up to the metal line, it's about 1" from the bottom) and pound it in. (If you took the dipstick housing from your old engine, make sure you don't clamp down on it too hard with pliers or vice grips. If you do, it will leave a sizeable indentation and you can't get the dipstick in or out. Ask me how I know.) Install the oil pressure switch on the passenger side, below the oil filter housing, and tighten it to 25 lb-ft with a 22mm deep socket or wrench.
If the block does not have the cover on the driver side of the block by the #2 cylinder, then you'll have to install it along with an o-ring. The part number for the cover is 11-41-1-276-333 and the o-ring is 12-11-1-276-333. Tap it into the block with a hammer and tighten it down with the bracket (P/N 12-12-1-364-199).
The motor mount supports simply bolt onto the left and right sides of the block and are not interchangeable, so you'll know which one goes where. Torque down the 13mm bolts to 16-18 lb-ft, but don't tighten the motor mounts because they'll have to be readjusted once the engine is in the car. If the supports look funny on the engine stand (like the passenger support is tilted way up and the driver one is towards the ground), don't worry because the block sits inside the engine bay at an angle.
Add the water pump (again, use that gasket sealant and tighten the bolts to 16 lb-ft) and front gear wheels. Don't add the timing belt yet because without a cylinder head, it's kinda pointless ;-).
Now, ready for the cylinder head?