There is certainly a market for the M1. I would be very happy to fork out the same amount as the old M3 pricing - which is roughly the same as the M3 Sedan. To me the M1 would be the new M3.
End of the body shape of E82 I don't think will matter too much as we know previously the E46 M3 was still in production well into E90 and E92 life cycle.
Seriously, everyone's lease would be coming up when they introduce the M1. I think many 135i owners with their lease coming up will be happy to move to the M1, knowing that would be the last inline 6 that would ever be produced for a 1 series. While the 'is' version might not have get people to swap over.
Let's hope we see the M1 at Geneva
. Besides we know they have been spotted testing, so we know definitely it is in development.