There are 2 versions of the X5M steering wheel -
1 has paddles with heat
1 has paddles without heat

Yes, you can upgrade to this wheel though the paddles and heat functionality will depend on what you currently have. From my understanding, for paddles to work you need an LCI Sport or M Sport model. I'm pretty sure pre-LCI models won't allow the paddles to function, and I don't believe they will on LCI base/premium models. Someone can correct me if they've seen otherwise. Also, if you don't have a Sport or M Sport already, you will need a different airbag.

Regarding the steering wheel heater, I was never able to find good information on this, but from what I did find you need to already have a heated steering wheel for this functionility to work (can't mount a heated steering wheel on an X5 and have heat if it didn't already have it)

I have a 2012 M Sport w/o paddles (June 2011 build - no paddles until October 2012 builds) - I just upgraded to a non-heated X5M wheel and the paddles work. I found mine for sale on xBimmers - you may need to search around. For some reason there doesn't appear to be anywhere that sells these pieced together? I couldn't find any. You can add up the parts on realOEM.com and combined it's well over 1K to build this wheel (wheel, upper trim, lower trim, airbag harness, wiring, 2 paddles).

If you can find one on the forums I highly recommend it - the tri-stitching and paddles are really nice. Even if you have an M Sport with paddles, the X5M paddles are nicer....IMO.