Not really critical to the discussion, but a 1996 323? I thought that 323s were e46s built around 2000/2001.
When you were looking at the MAF sensor, did you carefully examine the air tube from the MAF up to the throttle body? Did you look at the rubber boot on the throttle body? I am trying to square the loud noise you noticed with your power loss, and a huge air leak along that tube would be audible and would cause the symptoms you describe.
Can you describe the noise you heard? Is it still making the noise?