Technically, tires have one "perfect" pressure that produces maximum grip, and any pressure below or above that will generate less grip on that axle. In practice, increasing rear tire pressure WILL increase oversteer....and it has little to nothing to do with the diameter of the tires, lol. You'll never get an e46 on street tires to not understeer, in my experience...and a wimpy OE sway bar is a waste of time. More front camber from camber plates, and/or bigger aftermarket sways like UUC or the like.
I think 40psi all around is probably too much. It's hard to tell from the pics, but it looks like OP isn't scrubbing the tires all the way to the sidewall; there are usually arrows or indicator marks on the tire to aim for.