205 wont be stretched at all on a 7" rim.
I'm not a fan of stretched tyres personally but in order to pull it off you you need at least 9" and lots of dish. (IMO, for e30's, and same can be said for e36.)
The stretch look came about through nessecity but seems to be coming way more popular as a look. If it was me I'd fit the widest tires possible to a rim (within reason), not the smallest just for the eur0 or drift look. I'm all about having a sweet looking car but not at the expense of performance.
But, each to their own and do what you want to your car.