AggieE46, take a look:
Dyno chart of 3,5 inch bimmerworlld race exhaust for M3 e46
note a massive torque loss below 4400 rpm. And quote:
The factory uses their common twin-pipe exhaust design on the E46 M3 which is great for packaging - it fits nicely in tight places. But we have been around the block a time or two and built few exhausts for our pro cars, track cars, and project cars along the way and we are good at making things fit. We have also had our fingers in the S54 engine in various environments and we are well-versed in making power. Behold the result - even more impressive than we had hoped when we started building it!
Universal Header Fitment - Direct bolt-on for any standard E46 M3 header, including stock pieces with converters if you have to run them. Due to our necked-up primary piping, cars using the larger diameter Supersprint V1 Stepped Header can also fit this part by cutting off the short reducer section and welding the included flanges onto the pipes for unrestricted flow.
Race-Quality Merge Collector - Primary pipes flow directly into a hand-built merge collector, specifically designed to increase exhaust scavenging
. An oxygen sensor bung is placed after the merge to add a wideband sensor for dyno work or normal monitoring if desired.
Full 3.5" Diameter - It is extremely tight in some areas, but we made it fit, and very close to the body of the car - no low hanging points to drag on your trailer, entrance curbing, etc. V-band clamps connect the exhaust sections for a clean, tight seal with no gasket required. The 3.5" diameter requires hand-piecing mandrel-bent pipe sections together instead of bending longer pipe sections, but we are not willing to sacrifice our goals for ease of production. The final judge is the dyno, and a 3.5" exhaust makes more power than 3" in even a stock engine - and is an absolute requirement for more modified powerplants
Now, even though they had applied their "specifically designed to increase exhaust scavenging" collector, they couldn't improve low end. Also, 3.5" made 10hp, let's say 3" made 5hp. Very little gains, and such diameters were used on the engine which produces around 300 whp stock, where M54b30 make less than 200 whp stock.