| Con,
I can completely relate as our situations appear very similar: trunk space not a huge factor, room for four is a necessity, doing duty - with refinement, as a four season vehicle is paramount, and a satisfying audio system is icing.
After looking at, and driving many candidates - including the TL-S (with which we spent some three days evaluating), Dear Wife and I recently bought a 2001 325i 5 speed convertible with the sport and premium packages.
I imagine many here would concur that the folding top car is not as rigid as the hard top - which is correct. Frankly though, the convertible's structure is so stiff that only very-very bad surfaces produce some shaking of the cowl/windshield frame area. Otherwise, the car is impressively solid. Perhaps not one's first choice for auto crossing but, unless you must have every last oz of handling, I suspect you would find the convertible satisfying.
As you suspect, trunk space is limited but not unmanageable. Rear seat space - ditto, but usable for short trips with tall people, or the inverse.
The top is a fully lined and insulated assembly. Therefore, for a convertible, the car is impressively quiet with the top raised. It may not be coupe quite but it is quite reasonable. Because it is so quiet sound quality from the stereo system is not horribly compromised. Indeed, our car came with the optional Harmon/Kardon system and it sounds very nice. Certainly not as full range and transparent as a Magnaplanar/Bryston combination but nice. Be sure to bring a car home with the H/K option.
Performance wise, I cannot comment on the M3's - I've not driven one. I can tell you this however, our 5 speed 325i felt much more lively than the TL-S auto we spent several days with. The TL-S was - I don't know....tooo, generic. I can only suspect that the M3 would be a hoot. I also think the 330i would be a nice compromise between the 325 and the M3. If you go with a 325 or 330 be certain to order the sport package. Great handling and not at all punishing. Stiffer than the TL and nearly as compliant. Automatics, in any car, sap some performance and lots of involvement so - unless you are the shiftless sort, do opt for the manual transmission
These cars have soul. You're gonna love it.
Regards, Dan | 
