The valley pan is definitely covered by CPO and your SA is an idiot for saying otherwise. This doesn't even fall into a gray area. When I had cooling problems with my '00 540i, my service tech replaced the radiator, water pump, and valley pan under the CPO plan without any hesitation.

There's at least 1-2 full days worth of work to remove and replace all the components laying atop the valley pan. That's $1200 worth of CPO labor paid by BMW that the dealer is turning down.