I have a 2001 4.4i with 72,000 miles on it, 25,000 of which have pulled an 8,300 pound GVWR 31 foot travel trailer. UNRELATED TO THE TOWING, the "torque converter radial seal" began leaking at 62,000 miles. BMW warranted the $1,300 repair which was non-invasive to the transmission. I had the fluid changed at my expense during their warranty work (Read my thread of several months ago titled "100 Ata-Boys"). The fluid was still serviceable, so the number of miles on the fluid/transmission and severity of service is not necessarily indicative of failure

Your statement that several weeks ago your transmission was "hunting in 5th gear" and now that the oil "was sludgy and contained metal particles" indicates that your 5th gear clutch was "making & breaking" (hunting) either due to its mechanical failure or to a computer programming error causing the clutch to unnecessarily "make & break". The continual "making & breaking" generates tremendous heat which will degrade (oxidize) the oil. With the heat and degraded oil the 5th gear clutch has evidently catastrophically failed throwing wear metal throughout the transmission which would, as the dealer says, necessitate replacement (or overhaul) of the transmission.

Hindsight being 20-20 vision, you should have had the “hunting” problem corrected when it first manifested to mitigate transmission damage since if it was caused by a computer error it would be much less expensive to R&R the computer than the transmission.

I’d query BMW to see if they have a KNOWN problem with their transmissions failing in this way. No transmission should fail at 97000klms unless it’s been seriously abused.