BMW refuses to fix an issue even dealer agrees is their fault.

OK, so I have to rant about something. I have a 2004 530i with 27,000 miles. I took it to the dealer recently for a brake fluid flush, coolant flush and some other basic maintenance. The car also exhibited a very occasional glitch that caused the radio to be muted about 1 out of every 20 times the car was started. If the car was turned off, the problem cleared on restart.
When the dealer looked at my software loaded, they said my car was last upgraded in 2007 and there were 7 software updates. Would I like them installed for $150? I said sure and hoped that the upgrade might clear the occasional muting glitch.
Well, the software upgrade crashed the entire module, so now I have no I-Drive, no radio, and no park assist or anything else associated with I-drive either. The dealer blamed the issue on the software upgrade and assured me that it would most likely be covered by BMW as they caused the issue. Long story short, BMW is refusing to cover anything even though the dealer agreed to eat the entire labor cost in order to take care of the situation.
Now, I am sitting on a $1300 repair bill that I cannot understand how I am responsible for. Has anyone else heard of anything like this? I cannot even get anyone at BMW to explain why it is not being covered. The dealer still stands on their original thought that BMW should have taken care of this.
Any help, thoughts would be appreciated.