BMW just released a service bulletin less than 3 weeks ago, referring to this problem. I can't remember the number off hand, but it is an orange one, meaning it is preliminary notification of a problem.
The dealer HAS to follow this service bulletin if you complain of a rough idle in an M44 engine, be it a Z3 or 318.
There has been a problem with the 1.9l and it is setting check engine lights in a few cars. The fix is two fold. First the DME is desensitized in the misfire detection, second, a leak down check is done on the engine. If leakdown in any cylinder is above 15%, the head is to be removed, and the valves and seats machined.
I will be finishing a Z3 head Monday morning. It is not as prevalent as the M60 problems, but I was in on the first case to be reported, while at Westchester BMW. I pulled the head, lapped the valves and put it back, no better, pulled the head again and had the valves and seats cut, then BMW decided to take the engine back to NJ for examination. We put a new engine in the car and gave the customer 2 months lease payments as consolation for the problem and NJ came back with the above mentioned service bulletin, stating there is nothing wrong with the engine, all was within spec, therefore, the valve seat job must have fixed the problem.
At my current dealer, this is only the second M44 to suffer from the problem.
BMW and ASE master technician