Thanks! Upgrading the head unit a bit problematic because of the e34's design. (I'm no guru though, I just know a bit about acoustics)
Sorry I don't have any links except maybe here are some good examples of what people do.
http://www.diymobileaudio.com/forum/diyma-build-logs/
But, ahem, in a nutshell, in the e34 the head unit is just a signal selector (ie. cd/radio/etc) and sends 4 (FrontRight, RearRight, FL, RL) low current signals to the amp in the trunk. The amp boosts each of these signals to a level that will 'drive' the speakers (which basically work like resistors except instead of creating heat they move the cones in and out which is what makes the soundwaves). The amp sends this signal through the crossovers which split the signal up so that the low bass goes (for example) to the big speaker in the footwell, the 'mids' to the dashboard and the high stuff (eg the tsst tsst of the highhat) to the tweeter in the door. This is necessary because sound waves vary greatly in size, which is why the speaker placement is important too. The waves that make the 'tsst tsst' sound have a wavelength of a pinhead, but low bass waves are bigger than your head, so you can try and make one speaker play them all but it won't be as efficient, and will invariably lose out on both extremes when you boost the volume a bit. The 'component speakers' in typical home and car audio systems are made up of 2 or more speakers and the speakers have the crossovers built into them. The 'speaker ground' completes the circuit back to the amp.
But in the e34 the crossovers are inside the factory amp. Which is a pain, because the amplifier is the weak link in the factory system... it's just weak is all, if you want to improve the sound it is the first thing that has to be replaced. Pretty much all of the typical head units sold in stores have an amplifier built into them so you can just get anything that has a 4x?0W output and it will be an improvement, but if you just connect it to where the factory head was then it runs through the weaker (4x+/-15W?)factory amp before going to the speakers, which really kills the sound. But it's the only way to use the factory speakers without doing a bypass. Normally you should be able to do what's in the photo below but for some reason as I mentioned this didn't work for me.
I don't know if any of that makes sense, but that's my understanding of it anyway fwiw. It's a bit more complicated than your average car. When I bought it the (aftermarket) head didn't work and I though 'no problem, I can do car stereos easy' but it turned out to be a real bitch and it took me forever to get it working. I don't know, this kind of technology hasn't changed much since '95, and unless something breaks or you need to hook up an ipod or something I wouldn't mess with it... I never heard a stock e34 system actually, I imagine they sound pretty decent even with the feeble amp.