When an E36 six burns oil, telling valve stem seals from piston rings comes down to WHEN it smokes:
- Worn valve stem seals let oil seep past the valves while it sits, so the classic sign is a puff of blue smoke on startup or after idling at a light, then it clears once running — the engine otherwise fine and compression normal
- Worn rings or bores let oil past under load, so you get blue smoke under acceleration or on the overrun, worse the harder you work it, often with higher consumption and lower, uneven compression Compression Test
A quick separator — the wet compression test: if squirting oil into a low cylinder raises compression, it's rings; if it doesn't, the leak is past the valves (seals or valve seat).
Valve stem seals are a top-end job (head stays on); worn rings mean a bottom-end rebuild — so diagnose carefully before committing. Note the S52 and M52 aren't known ring-burners at sane mileage, so light startup smoke usually points at stem seals rather than a tired bottom end.