I found that my 2G touch did not get along with BMW interface even before IOS4. The display on the iPod shows "accessory connected" instead of showing the BMW Logo. Using a 5G Nano I can see the BMW logo. It seems to work pretty well. I am using the glovebox adaptor. I had an '09 535 loaner with the console iPod interface. That worked much better and didn't take as long to load the songs etc.
'07 530 Xi ,Auto, Gray, Black Leather, Premium, Cold Weather, Nav,Xenons,iPod,Sirius
'04 X3 2.5i gone
'07 X3 3.0si gone