I have driven a 120d, 120i and 118d IRL and have a copy of 1 series virtual drive, now while it is not possiable to draw a 100% direct comparison between the two (never got my test drive at the 'ring - shame), I can help to answer your questions.
Firstly the vast majority of road cars are set-up with initial under-steer, regardless of the drive type employed. The principal reason is safety, when a car under steers the natural reaction of most drivers is to lift off the throttle, this corrects the understeer and tracks the car back in line. If oversteer was the inital response then a lift off (particularly a rapid one) would result in a spin, FWD cars with lift-off oversteer characteristics actually have this engineered in to increase its effect and generaly gain a reputation for 'edgy' handling (for example the Pug 205 and Clio 172/182); its not a natural FWD characteristic, its a characteristic that results from weight transfer and on most road cars the engineers will work hard to design it out as much as possiable (again for safety reasons).
As I have said above 'lift-off oversteer' is not a FWD characteristic and not a characteristic that most road car designers want in a family car, if it was you would see family cars embeded backwards in hedges at every roundabout.
With regard to power-on oversteer, this is normally only encountered (with the vast majority of road cars) after the inital understeer and only if the car has sufficent power, neither of the 1-series in virtual drive or any of the real production models has the required power.
I'm not sure what road-tests you have been reading, but all the ones I have seen (Top Gear, Evo and Autocar) have all described a car with initial understeer characteristics, insufficent power to break the tail with power on over steer and very mild lift-off oversteer.
With the exception of the slightly exagerated lift-off oversteer I think that the virtual drive set up (with road tyres) is actualy very close to the real thing. Particularly impressive to me is the fact that the 120d has more apparent weight transfer (front to rear) under acceleration and braking than the 120i, due to the heavier diesel engine. This combined with the slightly sharper turn in on the petrol model (again due to the extra weight of the diesel engine), both are very realistic in comparison to the real models.