I will still be keeping the E34 as I'm un-ashamedly in love with it, It just too nice to use as an everyday driver any more and its a PITA to drive in traffic.
As long as you are keeping the E34 I say, "go for it!!" You've put way too much effort into your E34 to have it be a daily driver. If I ever finish mine I don't think that I could bear to drive it daily...
What aspect of the E34 do you have issue with in traffic? My only fear here would be that you'd have the same issues with an E39.
I agree with most of the posters here in that the E39 takes the feeling of the E34, adds some weight and an equal amount of refinement. It's a phenomenally comfortable car that is still well capable of giving you an ear-to-ear grin every time you drive it. Keep in mind, though, that it does feel much bigger than the E34 and that may or may not be an issue for you.
As much as I am completely neurotic I would recommend you not pay too much negative attention to issues like rod bearings and other E39 maladies. In reality it's no different than keeping an E34 in tip-top shape. As you've already experienced the heart attack that is E34 parts prices the E39 may actually be a welcome change.... and at the same time you'll be amazed at how similar the two cars really are.
The problem is when you find the "perfect" E39 and then go looking for another daily driver so as not to mess up the E39... ask me how I know!
I'm on an M3 kick lately, but who knows what's next...