Thanks guys. I had to grind even more material off of the calipers to get them to clear the inside of the wheels. I masked off the ///M's and repainted them. They have about 2mm of clearance now and will gain more as the pads wear. The paint came out perfect, you can't even tell that they were redone.
Today was spent bleeding the brakes and clutch systems. I flushed all of the old crap out and filled with ATE Super Blue racing fluid. I installed a new UUC Stainless clutch line along with the M3 slave cylinder. It took a few tries to bleed all of the air out of the clutch system since I basically dumped all of the old fluid. Right now the pedal hits the floor with no resistance at all, but I think that's because there's no clutch or transmission installed yet.
I think for now, I'm gonna leave the 318ti clutch master cylinder since I'm using the M3 slave cylinder. According to UUC, the M3 setup will make the clutch pedal feel mushy with the stage 2 flywheel/M5 clutch. We'll see how it feels with the steel braided line, 318Ti master cyl, M3 slave cyl, e34 M5 clutch & throwout bearing, 8.5lb flywheel & ZF transmission.
If it feels mushy, I'll switch back to the 318ti slave cylinder. I'm using the M3 brake master cylinder/ABS pump. Here's a few pics of the progress:
