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I have a 96 328 also.

Turns out my thermostat was cracked in half like an egg, causing the water to flow freely and the heater to work poorly unless the car was running on the freeway for some time (that allowed the water to get good and hot)

New therm fixed the problem and heater works fantastic.
Craig
 

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i had that same problem in my 96 328i... took it to the dealer and they replaced something in the heater... i forgot wat it was.. but was expensive heh
 
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