I like the recaro seats for my kids. I have used them succesfully in my 1 convertible. you should have no issue with forward facing seats and a 5'4" person in the passenger seat.
For rear facing ones I have no experience with the 1er. I sense you will run into some space constraints. if you are out of space perhaps you could put the baby in the front seat facing backward like you would in a two-seater and then your wife could seat at the back? it's not the safest baby seat location but should be ok.
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