Hello.
Firstly, are you really sure what you want? You have a different new car you want every week. First it was 316's now its these. Are you sure you want an E39 or do you just want a badge/a change?
Secondly, personally I would not spend £4k on an E39 5 Series. There are many around for this price but IMHO there are few which will make absolutely lovely buys. I, like Jez, like to buy one owner cars from people with more money than sense, backed up with a stack of main dealer invoices and an exceptional condition.
Ignoring the odd wild card, £4k is generally sound 97-99 523i and 528i money. These are 9-11 year old cars. The chances of finding that 1 owner car from an owner with more cash than sense is very, very low at this budget - at this budget you are instead going to be faced with multi owner cars, with each succesive owner having paid less for it and having a different sense of value. It took me 6 months to find the right car and I had more than double the budget to play with.
But that aside, lets look at the prefacelift E39.
You won't get a facelift for this money. You may find the odd one or two advertised, but there will be something wrong with each one and it's not worth bothering to find out. I would also dispute jamoors claim that you can get a good 530i SE for £5k - you can't, you can get shabby ones which only look shiney in Autotrader adverts. Be careful with that, most modern cars look really nice in Autotrader adverts. Last weekend I viewed a 2002 Audi TT which looked absolutely immaculate in the pictures. Luckily it was only 6 miles away becuase it was an absolute shed - the worst worn brakepads I'd ever seen, horribly corroded alloys from lack of attention, scrapes in the interior, basically a sign of an abused car. No, no, no. You do NOT want a car like this.
So, prefacelift cars. They do not have Angel Eye headlights or CELIS LED's as standard, so if you see any which do, they've been retrofitted. They also never came with 18 inch wheels, so if you see any with them, they are aftermarket. You also get ASC instead of DSC, and things like PDC etc are all optional and not standard. Velour interiors are common, whereas non-existent on facelift models.
Engine wise you've got the 520i, 523i and 528i to chose from. I'll ignore the 535i and the 540i becuase they are way out of your league and frankly I wouldn't recommend one anyway.
The 520i is not as Jez stated a 4 cylinder, every E39 ever built has either a 6 or an 8 cylinder engine. The 520i is a 2 litre 6 cylinder developing 150bhp, the 523i is a 2.5 litre 6 cylinder developing 170bhp and the 528i is a 2.8 litre 6 cylinder developing 193bhp.
0-60 ranges from well over 10 seconds in a 520i automatic to 6.8 seconds in a 528i manual.
Fuel economy, repair costs and servicing costs are near enough the same irrespective of which model you chose. The only huge difference in cost will be that of insurance.
So what goes wrong?
The E39 is not an unreliable car - it will rarely if ever fail to start or leave you stranded BUT it is not a Japanese car either. There are niggles. Some are more serious than others. Perhaps the first thing to mention is Nikasil. Originally, the M52 engines found in the prefacelift E39 had Nikasil bore linings. The sulphur content of domestic UK fuel ruined this lining, which pretty much ruined the engine. It's a HUGE issue *but* most of the affected engines have been replaced by BMW under warranty.
Cooling system - the weak part of the E39. It is not a case of will you have a cooling system problem, its a case of WHEN will you have a cooling system problem. The radiators go, the header tanks tend to get brittle with age and go as well.
Suspension - another part for concern. On cars which spend most of their time in town, which almost all prefacelift E39's now do becuase even the ex-fleet ones have had a subsequent 6-7 years in private ownership, the suspension bushes can wear requiring the replacement of the control arms (At £250 a side), dampers can go after a number of years, etc etc, leaving the car feeling a bit baggy. A complete suspension overhaul is about £1500-£1700.
There are the other odd issues but nothing really serious enough to mention.
Just to give you an idea running costs I've had to fork out, here is a rough idea of mine over the last few years and 20k miles (Before the usual suspects start, I've ignored the stuff I had done under warranty becuase BMW warranty policy was 'just replace everything', not something a private owner does):
1x Eagle F1 GS-D3 set of tyres, £550
18 months road tax @ £300
1x Radiator, Thermostat and Header tank @ £400
1x Wheel bearing @ £100
1x MOT at a main dealer (Warranty had MOT insurance) £50.35
1x MOT at local place £25
1x Oil Service @ £140 (Main dealer)
1x Inspection 1 @ £210 (Main dealer)
It needs new brake pads soon as well, at £70. Oh and I had to clean the idle control valve.
Frankly for the performance and class of car I really don't think thats bad - but obviously it's a LOT more than I used to spend keeping the Mondeo on the road. Now, the thing is, I justify this cost, as does Olly, by the fact the 530i Sport is just.. absolutely excellent (IMO, obviously) and I thoroughly enjoy mine by virtue of the fact it's mint inside and out plus I bought it at 4 years old. I think if I had a £3k 523i bought at 11 years old I'd begrudge paying this sort of money to keep it on the road.
FWIW, here is the original road test of the 1996 BMW 528i SE - the sort of thing you'll find for your budget.
http://www.autocar.co.uk/CarReviews/RoadTestsHistory/BMW-5-Series-528i-SE/200076/