After a long few months I finally got the car back running. Wanted to rebuild with forged pistons but the companies either wanted too much or was too sketchy and I was afraid of bad fitment/complications. Initially ordered from Keystone Auto but they got the M240i and M2 motor mixed up which wasted me a bunch of time sending it back. Lesson learned: to always ask for VIN to double check. Ended up with an option Omasou brought up on EBay. Car-part.com was also a useful search engine for finding options as well but some didn't ship to where I needed. Did try to bring it back to dealership for warranty, they ultimately couldn't figure out the reason and simply denied the warranty due to mods.
***They figured it out from tracing my account on bimmerpost, so a word of warning to others in the future to be careful of what you post here***
My guess at the end of all this is that BM3 tune did not have a lot of head room and when coupled with really sticky tires it lead to increase in high load low RPM phenomenon that lead to super knocking.
GG
