The 06 probably doesn't have an "armrest" button since it should have the newer TCU module which has a 2 minute window when the ignition is first turned on to pair with a bluetooth phone.
During that two minute period (on the 06) with the ignition in position 2...the cell/smart phone should be set to look for other BT devices. If working properly, you should see BMWxxxxx (where x=the last 5 digits of the X5's VIN) appear on a list on the cell/smartphone. At this point, select BMWxxxxx on the smart phone and then you will be prompted to enter the
passkey code. Once that has been entered successfully, then you should see something that says that the BMW has been paired on the phone.
At this point, I really don't pay attention to anything that the MID of Nav screen says or doesn't say because it appears to be so varied...but your cell/smartphone should convey if the phone & BMW paired successfully or not.
Pairing instructions for the 10/04-up build date (these instructions are for the TCU which doesn't require pressing any buttons in the armrest, etc):