If it counts the number of revolutions of the hub, then think about an extreme example. If it were possible to put 12" rims with low profile tires on the X5, wouldn't the lower rotating diameter cause a higher number of revolutions at a given speed? At that same given speed, a 26" rim with large tires would cause a lower number of revolutions, right?

Now, of course the difference between an 18" wheel with higher profile tires and a 20-22" rim with low profile tires isn't nearly that extreme, but the principle is the same. Even if it's a minute difference, the rolling diameter does change when you change your wheel/tire setup.

I increased my overall rolling diameter by a little more than an inch (1.25") when I put on the RR wheels, and I noticed a lot of difference in terms of handling, ride, acceleration, deceleration, fuel economy, stabilty, traction, basically everything. Part of the equation for me however is the increase of unsprung weight with the new wheels and slightly different offset, but it changed everything with my X. I imagine that it affected the computer/odo/speedo. For example - there's a speed sign right by my house that has a radar built into the unit to tell your speed. The speed limit is 45mph so it is high enough to expose a little inaccuracy in a speedometer. When I had the 18" factory wheels on, I would pass by showing 46-47mph on my cluster in the X. With the 19" wheels, it shows spot on 45mph on the cluster and on the radar. Now I know this entirely unscientific, but it does reinforce my opinion enough for me to believe it. Until I see a schematic of the device that shows exactly how the mph and/or mileage is calculated on the X, I'll continue to think that increasing your wheel/tire size DOES affect the computer and it DOES NOT automatically adjust to compensate.

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2001 X5 4.4i
2002 Honda S2000