OK, looks like I was dealing with a few separate problems...
After cycling the heater valve a few times, the leakage went away. I wrapped some paper towels around the area and after almost 3000 miles they are completely undisturbed and dry.
Some people report failure of the newer style valve, which is held together with clips instead of being glued, but it appears that this are more isolated cases then the norm.
The change from Mobile Tradition to BMW Classic appears to have had a major impact on pricing, the rational appears to be to make the support of older vehicle profitable instead of just taking pride in supporting them.
It appears that when I installed the new M90, I reversed inlet and outlet on the heater core. The hoses fit better with the coolant flow reversed, but the valve does not close all the way or gets pushed open. I have not had the time to test this theory, but several sources describe the same situation.
The E21 valve looks like it would physically fit and would probably work for non-A/C cars due to the more limited range of swing.
Cheapest source for the valve, which looks like the older, glued style, I found is on EBay, unfortunately shipper claims to ship out of Beirut, Lebanon, not sure of the reputation of the seller:
http://cgi.ebay.com/ebaymotors/BMW-633- ... ccessories
Has somebody dealt with this source before and has any feedback?
Thanks for all the help,
Klaus