The M-Sport does not give the sport suspension, but I wouldn't go so far as to call it purely "lipstick."
In my opinion, the sport seats are much better and more supportive and the sport steering wheel is nicer too. Additionally, you get the Sport automatic gearbox which isn't cosmetic at all and is an improvement over standard. Finally, the M-Sport also affords additional cooling over the standard model. This is all not to mention the 19-inch wheels which will provide better cornerning performance.
Honestly, I came from an E90 with the sport package and driving the X3 now with the M-Sport. My opinion is that, while it is clear that the X3 doesn't have the outright cornering performance of my old car, it definately keeps the BMW characteristics and is a sporty and fun ride when pushed hard. I don't think we are missing out on the sport suspension too much and the non-sport gives a nicer ride which I am appreciating the 95% of the time that I am not pushing the thing hard in a corner.