Hi Justin--My '76 has an M20. It's VIN 2374542, only a few hundred away from yours. One of the main motivations for the smog was in fact CA smog...It's fully BAR certified and I can smog it like a normal(ish) person. I realize you're thinking about swapping the '72, but just in case you want to do two at once....
If you want to stay with the "usual" BMW swaps, I think it's a great choice. The S14 isn't affordable or cost effective anymore IMO, and to me the six is a little sexier overall than an M42. If you want to go outside the BMW realm, there's some interesting Japanese stuff (SR20DET, Honda F20/F22, etc).
The main M20 challenges are:
1. Figuring out what to do with the radiator support. Most M20 swaps have a cut support for radiator and Motronic distributor clearance. Mine was done by Sean and Tom at Casey Motorsports in Petaluma without cutting the support, which involves relocating the distributor, running an electric water pump, and modifying some of the M20 coolant fittings. The core support is a structural piece, so if you do decide to cut it for clearance you'll want to make sure that the front end is properly braced.
2. Sourcing the transmission. The best trans for the swap is a Getrag 245 from an E21 323i, because it has a smaller case than the E30 unit and a mechanical speedo drive.
Beyond that, I used the 2002 Haus swap subframe, which places the engine nicely. The stock 325i oil pan is aluminum and winds up hanging slightly below the subframe, so that's a thing to be aware of, but that and the radiator support stuff is really the only fitment issues to worry about. It looks like it belongs there.
Casey Motorsports can answer really nitty-gritty questions about wiring etc. As far as the driving experience, I have few complaints. When I was contemplating my swap, I drove a friend's swapped car and it was pretty much a no-brainer.