Like many other posters in this thread (or the other funny one referenced), it's probably easier to think of worst loaner cars than best. I can't recall ever getting anything other than a 328i or 328xi, though I usually get my service done on Saturday and wait, so rarely have needed a loaner.
As for your other question, I don't care that much how many M badges BMW puts on non Ms, but I think it's likely a bad business decision that may come back to haunt them. On the other hand, AMG has whored their badge out on MBs worse than M, and it hasn't seemed to hurt them yet.
2011 Jerez Black/Fox Red E90 M3 DCT, ZCP, ZCV, ZCW, ZP2, BMW Apps
2015 Golf R