Just had the dealer install the ipod kit in my '04-545i. Reading this thread, I know there were limitations but even so, I could not see any reasonable aftermarket alternatives and didn't feel comfortable ripping my brand new car apart- I'm a BMW virgin. Cost me $550.
It is a bit frustration though that I only have access to 500 songs. I have a full 80GB ipod. Is there any way to just use the ipod menu directly and bypass the iDrive interface? The dealer was no help.