I found the answer! Upgrade to Navteq Version 2007.2 and Nav software 29.1. Previously I was running version Navteq 2004.2 that came with my 2005 X5 4.4i. After upgrading to the latest BMW nav software (29.1) and Navteq maps (2007.2), I am now able to set a default State.

I can’t wait to see what other upgrades version 2007.2 has…