Performance is awesome...I would definitely want to go for that. However, I also love a great sound system and I know BMWs aren't known for that. It comes down to what you prefer. Maybe you could split the difference...throw in a new head unit (Alpine or Nakamici are well known for BMWs) because the stock BMW ones are crap, then chuck in some new component speakers and you'll be sounding good inside for maybe a total of $500. Whatever is left you can throw into the engine: Chip, exhaust, CIA...but thats when it can get really expensive...
I'd go for performance if you can deal with the stock sound system as it is for now...
5 Speed Manual
Alpine CDA-7895 Head Unit
12" Alpine Type-R, sealed box
Pioneer 400w amp for $20 at a yard sale (to replace my fried MRV-1507)
Infinity Kappa 4" 2-way speakers(rear)
Infinity Kappa 5.25" component speakers(front)
Debaffled airbox, K&N filter
Tracked Mud on carpets
Shampooed and cleaned carpets