It is not in the throw out category at all.
The M10 itself is unbreakable. The abuse my '85 318i has taken without skipping a beat is amazing. I have a pair of M20 2.5s in the form of an '89 and '90 E34 525is, and I don't like either of them.
I have done little to mine since I like my fuel economy, but here in Australia, there are alot of companies that will tune M10s to mild, moderate, and extreme levels.
Good luck finding anyone that will touch, let alone tune an M40.
Bavariacars here in Australia sell the entire range of M10 parts and performance bits for 2002s mainly, but it all applies to the E30 M10B18s as well.
Decide whether you want to go the turbo route, or the N/A tuned route.
Turbo route ends in this (given your wallet can take it):
http://www.bavariacars.com.au/article/?id=42
N/A route ends in this (a fair bit cheaper):
http://www.bavariacars.com.au/article/?id=55
Getting 150Bhp out of it with some work is cheaper than the engine swap here in Australia.
Some of my mates have reached 180+ in their 2002s with creatively bored and stroked M10s running the M10B18 (1985 318i) head. No turbos.
It doesnt take a chip, because its the old L-Jet tronic system.
The best value upgrade I've been told consists of a ignition system kit, with a new high performance distributor cap, leads, coil, and plugs. Doesn't sound like it would do much, but it actually makes the most noticeable difference for the least cash and effort.
Most of the M10 fanatics in Brisbane run 2002s or E21s, and alot are running the 2.2L conversion kit, which was recently imported in bulk by a local 2002 owner. I think its a korman kit, and comes with crank, heaps of bits, and this particular kit came with a 4 branch exhaust that doesnt fit on E30s properly.