I do think that BMW left a few holes in the M3's game, but I don't think that is the entire picture.
For one thing the E46 was SO much ahead of it's time and competition when it came out it took every one by surprise and in my opinion it is destined to become one of the greatest engines ever produced along with the 360 Modena that entirely changed Ferrari for the years ahead.
The other problem is that other manufacturers became very good at perfecting their product, consider the new C63, apparently they got it all right this time. The new RS5 will surely be a beast after all Audi will aim to make it considerably better than the RS4, no slouch in it's own rights. As an M3 fan there is room for dissapointment, as a car enthusiast it's happy days.