There are a couple options for exhaust manifolds. If you are planning to get the car BAR legal then you must stick to the exhaust manifold setup that came on your car. However, we will rank the benefits of each.
Our recommendation: Use the 4.4 X5 exhaust manifolds or e39 exhaust manifolds. They are one piece instead of the e32/e34/ two piece manifolds. They clear everything much easier. They need to be cut and modified to work, but they are the easiest out of the other options to do so. Keep in mind that the exhaust manifolds are "double walled". Below we show two different ways to modify your x5 headers. Below, a 2 bolt flange is welded on so clearance with the steering rack is not an issue. If you plan on using an e36 steering rack, it actually makes clearance even worse and this flange setup is a must. Keeping pipe radius 2" helps with clearance issues although 2.5" is possible. In our opinion 2" keeps weight down and ground clearance at its best. Although we have run 3.5" dual, it is overkill, and the headers dont allow it to flow that much more anyway. Not to mention the weight penalty was huge.
Headers wrap is recommended because everything is so close. Power steering lines run really close to that exhaust manifold. In some cases you might need to add additional clearance by hammering firewall.
CLIFF NOTES: Use E39 or X5 exhaust manifolds.
Below shows the duals 3.5" setup with x5 manifolds. This design is not possible with an e36 steering rack so its best you do not try it.
So whats an m60 with dual 3.5" exhaust, cats, and a Borla exhaust sound like in an e30? Like this: