It's most likely your ABS DSC module. I just went through this exact same thing on my '02 530i. At first I sent my module in to get rebuilt but the repair shop didn't do a good job so I ended up buying a new one from EACeuroparts for $489. If you go the rebuilt route, use BBA-reman or module masters. If you go the new route, you wil have to get the module coded to your DME either at the dealer or from an indy shop (about an hour labor cost).
As an aside, I took it to the dealer after I got my rebuilt module back because I still had the three lights (ABS, DSC and brake). Dealer did diagnostics and said my hydro pump inlet valve was stuck and wanted to replace the whole unit (DSC module and hydro pump) at a reasonable cost of $2800! After they revived me from falling on the floor, I said no thank you.
I still thought it was the faulty module so instead of sending my rebuilt module back to be re-repaired under warranty, I just bit the bullet and ordered a new one. However, I did get a full refund for the faulty module repair. I also, sent it back to them after the fact so they can diagnose my faulty module. I haven't got any feedback yet.
All my three lights are out now! And car drives fine. HTH with your issue.
BMW '00 740il w/230,xxx miles, DIY timing chain guides complete! M60 Manifold, BDC Throttle Body, Performance gearing 3.46 LSD, Magnaflow Mufflers
BMW '97 ///M3/2/5 w/105,xxx miles
BMW '06 X3 w/130,XXX
Last edited by kimokk; 01-06-2012 at 02:52 PM.
Reason: Added more info