No one has specifically explained the options and how they work so let me give it a shot:
There are 3 things BMW will give you the option to pay for. iPod/USB support, smartphone integration module, and customized phone cradle for the smartphone integration module.
The iPod/USB module is a 3.5mm jack (like your headphones) and a USB port. In my 3-series they are both in the center armrest... in the 5 there is a port in the glove box (cant remember if this is in addition to or in place of). All this feature does is allow MP3s to be played through your aux player setting (hit the CD/DVD button on the iDrive). It will use the music tagging on the ipod or other usb device (a memory stick will work), if it is present.
The Smartphone integration module is a bracket in the armrest. It runs power to charge your phone, and "claims" to run antenna reception to the shark fin for better reception. However in order to use your smart phone integration module you must use a customized cradle that matches your phones design. This cradle snaps into the module. As far as I can tell this module fits current iPhones, and the iPhone 4 isnt going to fit right... I will know for sure in a week or so. I have bought all of this for my 335, which is my wifes daily driver -- but after we have had it for about a year now, I think that this solution is too much money for what you get and here's why.
The iPhone cradle with smartphone integration only charges the phone as far as I can tell. The antenna reception through the shark fin is anecdotal at best, and ineffective in practice (though YMMV). Through numerous tests we cannot distinguish the difference in call quality whether the phone is in pocket, purse, dock, or otherwise. To me, this makes sense since knowing the design features of the iPhone, there is not an engineering specific that allows better antenna quality by docking of the phone -- to the point, there is no other apple-branded or otherwise aftermarket signal improving dock out there. Why would a BMW car be the only exception?
Secondly, this dock does not use its data connection capabilities to sync your contacts, music, etc. Phone connection to you and your contacts still occurs over the bluetooth of your phone and car. While using the smartphone integration and the cradle, the music on your iPhone is completely inaccessible! To me the whole point of the smartphone integration would be to have its information fully accessible and integrated with my vehicle! Now, if I undock the iphone and use the USB/ipod connection, I can get to the music on my phone... My wife had an extra 32GB iPOD that she doesnt really use anymore, so she just loaded it up with music and leaves it in the car -- its a less than elegant solution, but to be honest, if we did this in the first place we would have saved some money. Depending on length of trip, she may or may not dock the iphone, but it is purely for charging purposes.
When I order my 5er, I think I am going to get the USB/iPod, but skip the smartphone integration and docking module. Keep in mind that the 5er also has a 6GB internal storage drive that you can also put music on if you so desire.
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