You probably have the stock cassette head unit, the C33. Just upgrading the head unit to the
CD43 (which has a CD player) will produce a huge improvement in sound quality. See
Factory Head Unit Deficiencies (a few posts down the page, if the link doesn't take you directly to it) for more detail, reportedly from someone who helped design the E36 factory audio systems.
BMW's part number for the CD43 head unit is
65 12 6 909 884. It was never offered as an option on American E36's, but it was available on the Z3 and (I think) European E36's.
The CD43 is expensive ($730) if you buy it from the dealer or
Bavarian Autosport, but it occasionally shows up on eBay for much less. I picked up a new, unused unit off of
eBay for about $350, and I've seen used units sell for less than that. I'm still using the stock amplifier and speakers, and sound quality is
much improved over the original head unit. Plus I get in-dash CD,
RDS/
RBDS, and a completely stock appearance. No weather band, though.