i just used my peake research scan tool on my M3 and it detected a bad O2 sensor and a misfire in cylinders 2 and 5.... what exactly does misfire mean? and what would cause this and how to fix?

The misfires could be a result of a mixture problem or bad plugs or coils. The O2 sensor problem could be a result of the misfires, or a cause if the code was for a pre-cat sensor that have more than 80-90K on it. And if that's not confusing enough, both faults could be the result of some other fault. Other possible causes include an intake leak, bad CPS, bad MAF, bad thermostat, etc. More diagnostic work is going to be required to figure out what's happening.

thank you for the insight i appreciate it

Did you ever figure this out? I'm getting misfire error codes and oxygen sensor error codes.

Is the Code 11 on the Peake tool the one that makes you think it is an O2 sensor problem? If yes, you may be reading the Peake tool wrong. On your post 95 car, the code 11 displayed, directs you to table 11 on the code chart, and then to the other codes, in your case, missfires in 2 & 5 are indicated. So, your problem is a little less complicated.
Clear the codes and see which ones re-appear. It could be a coil or plug. You can move the coils, for example swap 2 to 3 and 5 to 6, and then use the re-read using the tool. If the missfire moves to the new cylinders, it tells you that the two coils are questionalble. If the codes still indicate the original cylinders, then it could be the plugs. In any case, the Peak Tool will help you narrow it down.
By the way, this holds true for 6cyl cars. The code 11 that points toward 02 sensors do apply to V-8's and 4Cyl cars.

Replaced the O2 sensor in the downpipe and all seems to be doing well. I'll drive it around for a few miles to see if the problem/codes come back.

I just scanned my 325i 2002 it has 60miles and it gives me Misfire 1 through 6 cyl and Mixture control higher load cyl 5, Drive by wire throttle control failure, Oxygen sensor adaption limit cyl 1-3, Misfire w/fuel cutoff cyl 3...does anyone know what the problem could be? The car hardly accelerates after 80-90mph..? Please HELP!