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Steve,
My take is this doesn't sound like "a bimmer guy" to me. I've met a lot of BMW enthusiasts over the past few years of owning BMWs, and they/we tend to be more particular than most about things like check engine lights, traction control lights, clunking noises, etc. On the upside, he didn't pull the bulbs on those lights, so at least he isn't purposely misrepresenting the car's condition. I've owned three E36 BMWs, and I purchased my current one (96 328is) with a lot of unexpected "issues", there was about a half dozen codes for the check engine light, none of which were too difficult or expensive to fix - seems the OBDII BMWs light up the CEL for a lot of fairly minor issues. I'd suggest confirming the CEL is just for O2 sensor, make sure you get all codes read to know for sure. Unfortunately, unless you know someone w/a Peake code reader (or maybe AutoZone can read them for you?), you're generally stuck paying close to $100 for one hours labor at any BMW dealership just to have the codes read.
If you are good at fixing things and the price is right, I'd say bring it to a good BMW mechanic for an hour and get them to check it over so you know exactly what you're getting into. If you're not the mechanical type, expect to dump upward of several hundred dollars on getting it repaired.
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