When Apple announced a gizmo to iPod your BMW, I took them up on it. In fact, it was the reason I bought my iPod (40g Photo). Here is my experience and a description of how this works in my BMW X5.
BMW installs a special cable that runs into your glove box. You connect the iPod and just lay it down within the glove box (no carrier is installed). The other end of the cable connects to the in-dash radio/CD player. The iPod takes the place of the 6 CD changer from a functional standpoint (not sure how it works if you already had an optional 6 CD changer, which I did not).
Connecting the iPod in the BMW Glove Box
The cable cost $150, and the
installation was another $150. My dealer had them in stock so it was just a matter
of making an appointment (which coincided with annual service for me) and they thought
they could do it in a day. It ended up being two days (but they loan you another
BMW, so that was not a problem at all).
To access your iPod, you switch the stereo to CD mode (which is actually iPod mode with this setup). The dash displays a 1 through 6, simulating the 6 CD's. CD's 1 thru 5 represent an iPod play list, and CD 6 represents. The stereo's random function does appear to work with iPod playback. You do not have access to any other playlists or iPod functions, and no artist or song names are displayed.
Dash display with iPod playlist
The way the BMW / iTunes interface works is that you can set up 5 playlists in iTunes, named exactly BMW1, BMW2, through BMW5. These are the only playlists you can access in the car and they show up as CD's on the 6 CD player display. In the picture above, "CD 5-57" means that track 57 from the iTunes playlist BMW5 is playing. CD #6 represents your entire iPod library.
The steering wheel controls work as they would for a CD. You can jump to the end of tracks, jump to the beginning of a track, skip to the next track, and adjust volume. It's very convenient controlling the iPod from the steering wheel controls.
The random play function does not seem to jump around as much as the iPod's random function. It appears that the BMW random feature is more like plus or minus 5 songs when it selects the next track to play. The iPod's built-in random function would jump anywhere in the library. This is just my perception since it will pick 2 to 3 songs from the same album relatively close together. It could just be coincidence.
The iPod play is pretty stable, although there is an occasional dropout on some bumps in the road. I think the dropout is just the disc head pausing as it feels a bump. It does not seem to be a big pothole or anything, but certain types of bumps must get amplified given that the iPod is just sitting in your glove compartment. It is fairly rare. It could be something else.
Integrating an iPod into my BMW has been great (both the iPod and having the iPod in the car). Functionally, there is only an occasional short dropout if the iPod feels a bump, but nothing serious. I wish I had access to all my playlists, but maybe that will be an upgrade someday. Overall, highly recommended.