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"Compares best against" in what way?
It will absolutely bury the original model E30 M3 in acceleration since it has about twice as much power and weighs somewhat less than twice as much. It may very be able to handle more Gs through a corner than some M3 generations too, but it certainly won't feel as nimble or be able to change direction as fast as the E30 could.
The reason why "many see the M340i as a 'baby M' or 'M-lite'" is because that really is what it is. It exists to play second fiddle to the full M models in the lineup, providing a gateway to the M brand at a more accessible price point while tempting the enthusiast to aspire to M-proper purchase the next time around.
Progress is a great thing. Some of today's run of the mill econoboxes can embarrass a V8 powered "performance cars" from fifty years ago. It's great that the automobile is continually evolving to become a better, safer, quicker mode of transportation. But there is still room for nostalgia, and I'm sure we can all praise the state of the art while at the same time appreciating the great cars of the past.
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