I previously drove an LCI 330d and now have a '35 X5 (big, heavy, body roll at moderate speeds but surprisingly good for an SUV when pushed) and have a Z4M Roadster for weekends.
Your write-up is 100% spot on, which got me thinking.
Imagine the new 3 litre tri-turbo 'd' (38X hp and more torque that titanic) in an LSD 'M3' chassis. Massive roll on and top end power...probably faster than the current M3, with 6L turbo v8 supercar midrange and the on-limit handling of an 'M' car.
OK, it would miss that wonderful 'M' howl and would be a little heavier, but it would outperform current M motors in almost every other respect, namely instantaneous power, incredible overtaking punch, low rev effortless cruising, improved consumption and emissions. In other words, the roadcar equivalent of the Audi R10.
Alpina does a lovely job with a diesel engined car...so why not BMW?