Will staggered wheels from a 330ci fit a 98 z3?
Sellers claims they are M68 style 17x7.5F 17x8.5R and will fit.
I think those rears have a 50mm offset, while the 17" Z3s are 41mm. Is that correct, and is it close enough??

50mm sounds about right for the rear offset. I looked at those wheels in the past as well, but couldn't find any for a decent price. your stock rear wheel was a 17x8.5 with 41mm offset, so the style 68 would be 9mm (just over 1/3") closer to the car. The would probably work, but you may consider a 10mm spacer, along with longer lug bolts. That would bring it to about the same offset as your OE wheels.

My Z3 came with the 16x7 wheels (not a sport model). Does that make a difference?

oh, sorry. I'll admit that I'm not super educated on the '98 model/options. Take a look at your wheels, they should have the offset right on them (it may be on the inside, but on my style 42 they are right on the front of the wheel). It will say something like "ET41" or "IT41". That will tell you the offset of the OE wheels. Then you can calculate the difference with the new wheels -- make sure you account for the change in wheel width. Tirerack has a good explanation of wheel offset to help you figure it out. you can also use this tire/wheel calculator (http://gs.tolan-hoechst.com/tirecalc.htm) to see the change in fit.

I am assuming that the 17x7.5, and 17x8.5 were an option on your car, and that there were no other changes to the car when the car was purchased this way.

Think 9mm is to much to fit?
What about spacers? Are they safe, or a bad idea?

9mm is only about 1/3", so I think it would work (depending on tire size, of course). But I think most people would use the spacers rather than have a narrower track.

I looked into spacers briefly while I was researching new wheels. My impression is that they are safe, provided that 1) you buy good, BMW-specific spacers from a reputable company and 2) you may need longer lug bolts.

I don't have personal experience, but I think they are fairly common, even among people who autocross or track their cars. If it is for street use, I wouldn't worry about it.