Hi Screacher. The reason sometimes the engine dies sometimes not, is you're isolating the battery from the car, however the alternator still produces enough charge to spark the plugs and keep it ticking over. You can in effect run the car without the battery - but this is not recommended!
You are spot on about L2/R2. I'd take a picture of mine but the car went in the rollcentre for a cage this morning!
I took the dash out - not a major drama just the heater switch cables are a fiddle. Almost halfway accross the loom to the ignition closer to the pasenger side I cut through four cables, Thick Green, purple, red and yellow/black. See BrianMooooore's list of wires here
http://www.e30zone.net/modules.php?name ... 31#2302131
If you have a multimeter, and are paranoid like me, you can poke one terminal through a wire and the other at the ignition barrel to see if you have a circuit so you know you are cutting the right wire!
The green and purple will need to be routed through your cutoff L2 and R2 to red (live power straight form battery positive) - these are joined when the switch is ON. The green and purple are what allows your car to be powered, so breaking power to green and purple (from red) kills the ignition, as if you'd turned it off using the key. This why your cutoff switch is dual purpose, removes the battery and switches off the ignition. I guess it has another which is any residual power from the car that can't go back to the battery is short circuited back through a ceramic resistor - this works a treat I found out it gets quite hot if you accidently wire your electrics wrong as an emergency in a rush.
Because I was cutting a few ignition wires I thought I may as well go the whole way and routed the started wire - yellow / black to red (live) via a starter button. The only thing the ignition barrel provides is steering lock. There are a couple of smaller cables for parking lights apparently.