If price is an issue, don't hesitate to choose the 325i. For a price less than the typical mid-size SUV, and nearly $7,000 less than the 330i, you get a true European sports sedan. You may never miss the extra power of the 330i, and you certainly won't miss the increase in monthly payments. The 2.5-liter engine doesn't develop the urgent thrust of the 3.0-liter, but it has plenty of power and it's delivered in smooth, linear fashion with no significant dead spots or rushes. Just strong, steady propulsion. It's so smooth that it's easy to rev past the redline to where the rev limiter cuts back on the throttle.

BMW uses inline six-cylinder engines instead of V6s. Though it takes up more space, an inline-6 is has its strengths in terms of operational performance. Indeed, BMW believes that six pistons lined up in a row run more smoothly than two banks of three pistons arranged in a V, and we agree. Both 3 Series engines feature the latest high-output technology, including fully electronic throttle control and a dual-resonance intake system. The throttle feels light, responsive and linear in its power delivery. BMW's double VANOS variable-valve timing helps both engines provide plenty of torque (the force that makes a car jump when you hit the gas) throughout the rev range. Both engine meet new ULEV2 emissions standards in California and the Northeast.

The 330i's 3.0-liter engine delivers most of its gusto at the top of the rev range, yet is surprisingly strong at lower engine speeds, too. BMW claims a 0-60 mph time of 6.4 seconds for the 330s with the manual transmission, versus 7.1 seconds for the 325i. Both top out at an electronically limited 128 mph, unless you order the Performance Package.

The new Performance Package for the 330i sedan adds 10 horsepower and 8 pounds-feet of torque to the 3.0-liter engine. Moreover, it includes an integrated package of performance upgrades, including a sport suspension tuned by BMW's elite M division, and a manual shifter that reduces shift throws 0.4 inch (the Performance Package is also offered with the automatic transmission). So equipped, the 330i sedan goes like a virtual four-door M3, with a similarly aggressive appearance for at least $7,000 less than the M3 coupe. This package trims another second from the 330i's 0-60 times: 5.4 seconds is fast for any sedan, much less one with a six-cylinder engine. The top speed extends to 155 mph, which is the voluntary limit adopted by most German automakers. We should note that this increase in speed is not solely because of the engine. The performance package includes Z-rated tires that are certified to operate safely at 155 mph. (That doesn't mean the driver will operate safely at this speed, however.)

Shifting in the 3 Series is a smooth, satisfying operation, even with the base five-speed manual in the 325 models. The shifter uses longer throws than that in a sports car, but its movement befits a world-class sports sedan. The six-speed in the 330 models adds more flexibility with six gears to choose from and reduces engine revs at cruising speeds. The short-throw shifter with the Performance Package is more like that of a sports car; it shortens lever movement between gears and snicks impressively from one slot to the next.

The automatic transmission works superbly, always keeping the engine in the optimal power range. All automatics are five-speed Steptronics. Pulling the lever to the left allows auto-manual downshifting and upshifting. In 2003, BMW switched shifting directions: Now, tip the shift lever forward to downshift, pull it rearward to upshift. Steptronic can be useful and entertaining, but the real benefit of these transmissions is how well they work in the automatic mode. Shifting is smooth and precise and the driver almost always feels the transmission is working as part of the team, rather than fighting against driver and engine.

For 2004, BMW offers the Sequential Manual Gearbox previously reserved for the M3 in all rear-drive 3 Series variants. We've tested the SMG extensively in the M3, and you'll either love it or hate it. At first, I hated it, but after a few days I loved it. It's important to understand that this is not an automatic transmission per se. If you want a smooth-shifting automatic, this isn't it. While the Steptronic is an automatic with a manual feature, the SMG is a manual with an automatic feature. Like a Formula 1 car or a Ferrari 360 Modena, the SMG has a clutch, but no clutch pedal. In automatic mode, it shifts like some robot is working the clutch for you. When I first climbed into the M3, it was set in the slow mode, which, to me, feels like someone who hasn't mastered smoothly coordinating the gas and clutch pedals is doing the shifting. The car slows down, the shift is made, and the gas comes back on. Dial this up to the fastest setting and it shifts quickly, but very abruptly, more like an F1 machine. Advanced engine electronics interrupt the engine's power for just milliseconds, the control unit disengages the clutch, the transmission changes gears electro-hydraulically, and the clutch is engaged. You can also set it for manual shifting, and this is where I began to love the SMG. The sequential gearbox is shifted manually either with the shift lever or with butterfly paddles on the steering wheel (one paddle to upshift, one to downshift). The stick has a great feel and it responds like a manual with similar or better performance. Downshifting is really cool as it blips the engine, double-clutching to change down. Switching between manual and automatic modes is quick and easy once you get the hang of it. If there's a better sport coupe than the M3 with the SMG, we don't know what it is.

All 3 Series cars are extremely stable at speed. I found it difficult to obey the 55 mph speed limit while driving a 325i sedan around Washington's Capitol Beltway, and nearly impossible to stay within the law on Maryland's back roads. The 330i is so smooth and stable that I needed to trail-brake the first time I came into a favorite sweeping turn, realizing that I was heading into it a little hotter than usual. Yet even hard braking in the middle of a curve (a maneuver that will quickly demonstrate the weaknesses in lesser machines) doesn't fluster the 3 Series cars.

The suspensions are tight on these cars, giving them the feel of finely engineered machinery. They put the driver in touch with the road. You hear and feel what's going on, though the outside world is muted well enough to ensure comfort. It's this balance of impressive handling and ride quality that BMW masters, and it's a characteristic that defines the brand. The stiff 3 Series chassis structure allows the suspension to dampen irritating road vibration, reducing the chance of squeaks and rattles inside the car. The M3 is the tautest of the bunch.

Steering response is more like that of a sports car than a luxury sedan. There's little play in the steering and the feeling is direct. This car goes exactly where you point it. Unlike the over-boosted power steering found on many luxury sedans, the 3 Series provides good feedback, though the steering feels surprisingly light. These cars handle curves with aplomb, gripping tenaciously during aggressive cornering maneuvers. When the tires finally let go, the resulting slide is still fairly easy to manage. It requires a bit more skill than in a front-wheel-drive car, but at the same time allows the driver more control. The M3 generates incredible grip, and by incredible we mean more than some premier sports cars like the Porsche 911.

While front-wheel drive has merits, pure race cars use rear-wheel drive. Enthusiasts prefer rear-wheel drive because they can actually steer the car with throttle inputs. The payback for this added element of control can be a skittish rear end, particularly on slick surfaces, and a condition known as oversteer. Indeed, the BMW 3 Series has never been the easiest car to drive in the snow. Yet BMW's sophisticated multilink rear suspension is so well sorted that the rear tires almost always stay firmly planted in normal road driving, even on very bumpy roads. Rear-wheel drive offers other benefits, even at a modest pace. The steering, handling and general feel are noticeably different even when driving around the block. The steering is pure because it's never influenced by torque steer, a movement of the steering wheel as engine power is transferred to the front wheels. Bottom line: The 3 Series feels much more sophisticated than most front-drive sedans from Japan that are asking the front wheels to do two jobs: Steer the car and propel it forward at the same time.

All 3 Series models come with Dynamic Stability Control, which enhances driver control and safety in emergency maneuvers. DSC helps stabilize the vehicle in severe cornering maneuvers by judiciously applying the brakes to individual wheels. In other words, it helps the driver maintain control when the tires begin to lose grip. Electronic stability control systems, such as BMW's DSC, can save your life by helping you keep the car on the road. But DSC also enhances handling on winding roads, smoothing out minor errors, making adjustments when you hit a patch of sand in the middle of a tight corner. The system kicked in for me in one tight corner, while I kept the throttle to the floor. The rear tires lost grip, but DSC seamlessly reduced power and applied a little braking force to one of the front wheels, as smoothly as the most talented race drivers on the planet. This is extremely beneficial on a rear-drive car in slippery conditions, but it's also useful on dry pavement. A switch allows the driver to turn DSC off when it isn't wanted, if you want to light up the rear tires, for example. By pressing the DSC button briefly, the engine intervention feature is turned off, leaving only brake intervention functional at low speeds. As speed increases, however, the engine intervention gradually comes back into play. Hold the DSC button down and it shuts off everything except anti-lock braking, useful if you get the opportunity to fling the 3 Series around a race track or autocross course.

Brakes are even more important to going fast than horsepower, and the 3 Series provides excellent stopping power. The 330i's massive rear discs can be easily seen through the spokes of the wheels. On a familiar twisting, bumpy, gnarly road, I slammed on the brakes both in a straight line and while turning, the latter a driving faux pas. Either way, the 3 Series sedan brought me to a quick, uneventful stop. The anti-lock system is seldom needed on dry pavement due to excellent grip and a taut suspension, the latter keeping the car stable and minimizing nosedive so that the rear tires can contribute to the effort. As a result, this car stops very quickly, and it's easy to control in a panic braking situation. Repeated, high-speed stops beyond anything a driver will undertake on the road, stops that would literally leave the brakes on many sedans smoking, have no significant impact the braking performance of the 3 Series, reassuring when descending a winding mountain road.

All-wheel drive adds the grip of the 3 Series cars and is particularly beneficial on snow and ice. The 325xi sport wagon we drove felt like it was on rails on dry pavement. The all-wheel-drive system on 325xi and 330xi models uses a planetary center differential to split drive torque 38/62 percent front/rear, preserving the rear-wheel-drive feel that BMW enthusiasts demand. All-Season Traction Control (AST) and a specially calibrated version of the Dynamic Stability Control (DSC-X) enhance foul-weather safety.

Hill Descent Control, which comes standard on 325xi and 330xi models, helps the driver maintain speed and stability on steep downhill runs. The driver need only press a dedicated HDC button on the console to activate it; Hill Descent Control then takes over, gently applying the brakes as necessary to help keep the speed to a brisk walking pace. Just keep your feet off the pedals and let it walk you down the grade.