I heard that fitting 17 inch wheels on a E36 BMW will ruin the steering rack ?

Any "improved geometry" will not work, as the designed specifications only will perform like the books say it should. Anything else and you're taking chances with handling and performance.

If the wheel is plus sized correctly, the diameter will remain the same. No change would be felt by the steering rack. Use this site for determining correct wheel/tire plus/minus sizing - http://www.miata.net/garage/tirecalc.html

The steering rack can't be damaged by the wheels, but you may need "lock-stops" fitting to reduce the amount of steering you get on maximum lock so the wheels don't foul the chassis legs!!

E36 M3 ran 17 inch from factory and the rack is essentially the same, size them correctly for rolling radius and offset and it should be good, just be aware that there is less give in the tire so the load to your suspension is greater, good time to look at radius and trailing arm bushes and strut top mounts

i have 17's on my 328i an have no issues rubbing grinding or any other but tire size is key on the rear 245/40/r17 anything above 40 will rub out on your arches over bumpy roads etc, atm i have 225/45/r17 on the fronts until i replace them but even at that size they dont have any problem at all, so go for it, the only time you will have to adjust the steering rack will be if you lower the car as the angle needs to be adjusted to avoid problems with turning