Engine braking serves two purposes: to start off in the correct gear (not as likely since if you accelerate, it will downshift anyways) and most importantly, generate enough vacuum to apply braking pressure. You do need high RPMs to get good vacuum, but if RPMs are very low, you will get limited braking power. Notice your RPMs are not "true" engine braking and stays under 1500 rpm with each downshift. (in real engine braking, you will be hitting 2k+ with each downshift) Fuel is cut off under no load with RPMs are above a set threshold. The injectors will kick in under that threshold. You can see this by revving the engine and then, as the RPMs drop, you see a slight bounce 1k. Its not BMW specific, pretty much all cars do this nowadays.
Ordered 4/20/2011 - Delivered 4/20/2011
Has a little bit of this, some of that - a happy camper.