It depens what's your basic model. If it's 1.8 or 1.9 then it's easy to put there 2.8 engine together with gearbox and all the needed stuff. If it's 2.8 version then you will have to stick with the 2.8 engine because the next step is the M Roadster which is a completly different animal.
I have 1.9 engine and I'm also suffering from the low power desease. I was talking with my local BMW specialyst and he told me what to do (the 2.8 engine).
Also the small engine Z3's don't have the ESP and I heard that it's impossible to drive 200HP + Z3 without ESP
Remember about the better breaks in the stronger Z3's. It's also possible to put it into smaller Z3's.
I don't know where're you from but in Germany it's easy to get good condition 2.8 engine for... hmmm something about 1000 to 2000 bucks
