Congrats on your Ebay purchase! I saw it on the 'bay
a few days ago.
I daresay the problem is the clutch slave cylinder on
the side of the gearbox. I bought an old B plate 518i
about 3-4 years ago from Southampton car auctions
for £20
to use at the BMW Driver's Club
track day. Same problem - pedal straight to floor, all
the fluid had p*ssed out. I got it back by tipping some
EP90 gear oil in.......
Add some fluid,
pump the pedal and you should see the leak. They're
dead easy to replace.
A new slave cylinder is £19 plus VAT from Euro Car
Parts but I would fit a new hydraulic hose too.
It might just be the clutch master cylinder - remove
the under column dash trim, shine a torch in there
and you'll see a major fluid leak.
As for rattling - it could be just general old age. If the
oil pressure light stays on for a bit, it might be the O
ring where the feed pipe fits onto the pump - or if
you're really unlucky the o ring there said pipe fits
into the block. You have to drop the sump in both
cases (not hard) but also the front timing cover.
There are no hydraulic tappets on these, so setting
the valve clearances would be a start.