Check out this thread. The newest OEM CD changer supports MP3. Plus, if you upgrade your radio some day, it will even display the artist and track information on your nav screen.

Alternatively a lot of people go with the Alpine CHA-634 with an adapter to connect to the BMW OEM system.

__________________
SOLD
2000 E38 750iL Highline Edition, Upgraded with the lastest 2006 X5 Electronics
MKIV Navigation, 16:9 Display, Bluetooth, TV/Video with Backup Camera, Sirius, and Aux Input