That's a strange problem...
Pop the disk and see if it's correct, and readable. My experience of these Beemers is that the disk gets dirty in time and I generally keep the OEM disk and burn copies, throwing the copies away when they get dirty (or superceded). CDs read from the inside out so if you have any contaminants on the inner tracks, the disk can be unreadable. If in doubt, stick it in a PC and see if that reads it.
I think the way these cars piece together the various components that can be seen on display is through 'announcing' their presence on the I-bus. If the head unit can't 'see' the GPS system, it might be a problem with the connector or wiring - have you checked the wiring visually at the Nav Unit end?
Also - which head unit do you have: 16:9 or earlier? (When I bought my M3 in Sep 2001 there was no 16:9 option). Either way, the head unit is pretty easy to take out if you want to check the connectors are seated and locked. Have a look in the glove box and see if there's an Aux connector - sign that someone may have been at the wiring in the car.
Perhaps if you can detail exactly what the menu options are on the head unit that might help someone who has this year of car to assist. Also - do all other functions work from the head?