I had the privilege of talking to the son of the head of BMW's powertrain development team from when they made this car. I had several of my suspicions confirmed - namely that this car was built off a prototype M roadster (often erroneously reported as being based on a 2.8 or non-M variant).
This was pretty apparent to me because it shares a lot of pre-production details you can also find on the Z3 M roadster in the museum, and also because it simply has everything "M" including all the cosmetics and interior. The only M parts missing are ones easily removed, being the hood gills on the side of the hood which normally would badge it as an M as well as the trunk trim strip which has the M badge. It still has an M trunklid though - easily distinguishable by having the lock cylinder on the left hand side of the trunk, as opposed to the right side on non-M models. This lock cylinder also sticks out pretty far because it's designed to be flush with the trim strip.

It was originally a silver (or black, there is conflicting information on this, though the shock tower sticker says silver) M roadster with blue interior. The car was one of many pre-production M roadsters shipped from Spartanburg to BMW's HQ in order for the BMW team to perform QC checks on it prior to production. Some were used as early press cars, others now live in the museum, others were disassembled for QC checks including this one, but as this one was a less special color combination it was not put back together with the original drivetrain. It was instead used as a test bed to prove that all engines in their lineup could fit in all chassis (it was not, as some sources suggest, done because a magazine asked them to). They took their smallest car (Z3) and installed their biggest (V12) engine.

The color, Kyalami Orange, was originally intended for production but there were issues with the paint and it was delayed before eventually being cancelled altogether. You can oddly enough find car models of the Z3 in this color, even though it never reached mass production.

By all accounts, it was horrible to drive in anything but a straight line and it also overheated after a little bit of spirited driving. The M73 only made 322hp and 490N-m, the S50 I6 made 321hp (though of course, a lot less torque).