I had the exact same problem on my M50 525i, the owner problem kept drivign and the cylinder head cracked.
The M50 heads are pretty frigile and tend to crack arfter overheated. So my guess is maybe a headgasket, but probably a cracked head.
Pulling the head is easy, shouldn't take more than 3H00 because you don't have vanos.
Putting the head back will take a little bit longer...
No matter what, get the head rebuilt and checked for cracks. A used M50 vanos or non vanos (you can use both) will run around 300- 400 US. If you buy a vanos head, just get the non vanos cams into the vanos head and drop the vanos all together.
Also get a new water pump and thermostat, new headbolts and headgasket set.
Driving a car that overheated cannot be good for the engine really.
'85 Euro 635csi Race Turbo, megasquirt, Group A
'92 525i Touring 5 speed, 3.46 diff, UUC 8.5lb flywheel, soon to be turbo.
'02 Subaru WRX Wagon with STI springs, bigger sway bars