Lemons is loads of fun. My $0.02:
OP, you don't want to try to cut cost in the safety department.
Unless you are really experienced with building cages, I would highly recommend getting the cage done at Evil Genius since you are in Sacramento. Lemons is strict about safety (which is a good thing), and the folks at Evil Genius also just happen to do the safety inspections for Lemons races. We tried to do the cage on our own, but it would have failed and Evil Genius ended up doing our cage over. It's just one less thing to worry about, and it's not really any more expensive.
FYI, I would think that you would be sweated during BS inspection if you show up to race in an e36. BS inspection is where they assess the vehicle's value, and if they think you are over $500, you could get penalty laps, even if you have a properly documented $500 car (which really should be possible with an e36). There are some really talented teams though, so it takes a quick car that gets through BS inspection without penalty laps and doesn't break, good pit stops and driver changes, and good drivers to be competitive. Most importantly, it takes a clean race (no spins, stay on track, don't hit anything, don't pass on yellow, etc.). So, depending on your capabilities, if you want to run an e36 and your only goal is to have fun, then go for it. But if you're worried about penalty laps, you might want to think about picking a car that is a little more low profile.
Also, you might be surprised how much a $500 race car ends up costing...