I have never seen this before either. It sounds like you could have a fault in the 16:9 unit with the CD player. It could also be the radio module-- maybe an incompatibility there?

Did you originally have navigation in the car, or did you do a virgin retrofit?
I have not researched E46 component compatibilities, but does the radio module need to be a certain version to work with the CD player?

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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