First of all, I'm 90% sure I know where you went, and I can tell you what went wrong. I've written about this on many occasions already. But hopefully a new crop of people will learn from these experiences.
First mistake: you let the dyno "guess" your gear ratio. In the absense of actual gear ratio data, the Dynapack can "guess" your gear ratio by holding the motor at a specified RPM and using the hub speed to calculate the gear ratio. This appears to be a 6MT, and 4th gear was used (not 5th). You would have hit the speed limiter in 5th gear. The dyno guessed 4.5:1, when the actual ratio is 4.586:1. This place only has one dyno operator, and he was lazy. If he wanted to, he could have looked up my dyno chart, and used the proper gear ratio. I dyno'd in 3rd, 4th, and 5th gear at this shop.
Second mistake: This particular shop does not have enough air flow for your M3 motor. The M3 motor reads air temperature and air flow and knows when it's sitting still. When there isn't enough air flow, the ECU will richen the fuel mixture, and you'll get a much lower horsepower output. The same thing happened to me at this shop. After I switched shops, also using a Dynapack, I picked up quite a bit of power -- all because of air flow.
Third mistake: You used 4th gear; you should have used 3rd gear. Using a 1:1 gear is a total myth. Every gear ratio (even 1:1) has a primary and secondary sprocket, an output shaft which drives a primary and secondary on the final drive. You're ALWAYS going through four gears sprockets before you measure the output -- even when the gear ratio is 1:1. Different gears have greater and lower mechanical efficiency -- and they go in an inverse ascending order. 6th gear is the least efficient, followed by 5th, 4th, etc. You should dyno in the gear that has the greatest mechanical efficiency -- and won't overload the torque rating of the dyno. On the M3 and Dynapack, that's 3rd gear. (6.084:1)
Using your power or "M" button will have no effect. I dynoed this exact test three separate times, and proved it has no effect. As you figured, turn off DSC. Also turn off all electronics (fans, lights, AC, etc.).
HP = (TQ * RPM) / 5252. It's not just typed in...it's a formula.
Lastly, call Aggressive Performance in San Jose; ask for Su. He'll do it right. He's dyno'd mine 6 or 8 times already.
http://www.agpmotorsport.com/home.html