Actually the 2001 Xs also have transfer cases cuz the same exact failure happened to me a few months ago,
my drive shaft and transfer case blew out driving back from Jersey. The splines going in transfer case from the drive shaft got worn out.
You're right, it's a pretty big ticket item unless you take it to BMW independant mechanic.
The mechanic also told me it's a very rare incident, so check with your local independant shop before taking it to the dealer.
Check these threads for more details
http://www.xoutpost.com/x5-e53-forum/...illy-area.html
http://www.xoutpost.com/x5-e53-forum/...bs-update.html