Yeah I suppose a 400hp 335i would hurt M3 sales because unfortunately there are enough not so smart people who think HP means just about everything.
Just look at the WRX vs. STI. People say the STI isn't worth the extra money because the WRX is quicker to 60mph.
To me that's stupid because straight line acceleration is just ONE of MANY aspects of performance.
A 370z for example blows the doors of the Mazda MX-5 but I'd MUCH rather drive a Mazda MX-5.