That definitely sounds like it's on the high side. Circle BMW sells the DVD player for $1,795. I'm wondering if there is an aftermarket alternative? If you really want the OEM look, simply purchase the DVD kit and have an indie install for you.

As a comparison, I spent ~$3,000 installing 7" headrest monitors, 2 JL Audio amps & capacitors, Alpine NAV, and MBQ component speakers in my H2.