It's your cluster for sure!!!! You HAVE to change the 318i cluster to the m3 in order to get proper readings. It can not be re-programmed. He lied! He just left it there and did not bother to replace it.
<img src='http://img43.exs.cx/img43/275/Resize.jpg' border='0' alt='user posted image' />
Body: 318i 4 door
Mods: M50 engine, Jim C chip, light-weight flywheel, dual cat-back custom exhaust, 3:15 lsd, euro headlights w/angel eyes, 5300K HID, smoked corner lights, FK Motorsports foglights (crystal clear), ABS plastic upper eyebrow, clear side markers, M3 powered side mirrors w/LED, blacked out grill, M3 lighted shift knob, 17" ROH Furry wheels w/Kumho tires, Brembo cross drilled rotors and Hawk performance brake pads all around, PSS9 Bilstein and H&R coil over kit, front strut bar and Alpine alarm.