This is a very common problem with the X5's. The CV covers tend to crack and there is a well written article on the home page that discusses replacing them.

I have had two cracked boot covers.

Every oil inspection and sometimes in between I inspect the boot covers to make sure there are no cracks. If there are, and it is caught early enough, you can replace the boot covers before dirt/rocks/elements start to get in there and wear down the shaft.

The covers are cheap (20 - 30 bucks) but the axle is expensive part (400 - 500 i believe). Generally the sound is not a good thing, and indicates failure, however you may want to get a professional opinion to see if you can clean it out and repack / grease it up with a new cover.

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Previous: 2002 X5 3.0 / 121,000 miles
Current: 2007 X5 3.0si / 93,000 miles