If your car uses the same heater control valve that the newer e36s use, it is a dual water valve, one side for each side of the dash, and one side is not opening.
As I recall, there are three wires to the valve. The middle supplies power, and the side wires are grounds provided by the heater controls. If you power the middle pin and ground the side connector on the valve, you should hear the valve snap from wide open to completely closed. If both sides sound OK, you can try opening the passenger side while the car is running and warm and make sure you get hot air to the passenger side, but I am guessing that only one side will snap open because the water valve is subject to corrosion and heat and gunky water and is more likely to fail than the dash control unit.
Replacing the water valve on a 6 cyl e36 is a PITA because of tight quarters. Easier if you remove the air plenum from the firewall, but pulling that air plenum loose from the firewall if it has not been removed in 16 years may be a two-man job. I nearly did a back flip over the radiator when mine finally broke loose when I removed it to replace heater hoses. Speaking of heater hoses, if you replace the water valve you definitely want to replace all the heater hoses at the same time. They are due. Don't forget the hose under the intake manifold. You need to remove the cap on the oil filter to get your arm under the intake manifold.