It takes a lot of changes to upgrade a car to a true M3. Engine, MAJOR suspension changes (struts, shocks, mounts, bushings,etc.), wheels, welding in subframe plates, exhaust, etc. Sorry, but I think someone was leading you on.
This question comes up ocasionally. The answer is that it will cost you ALOT less to sell the 323is and buy an M3 of the same year. It will cost you $10K+ to buy all the parts, plus labor, at least for new parts. You might scrounge used parts, maybe for $3K to $5K plus labor.
Or you could sell the 323 and get a used M3 for the same $3K - $10K more, no labor, and a real M3.
If you are looking just for engine performance, you can gain 15 - 30 hp with a Shark Injector and performance exhaust. Or supercharge it.