The updated nav OS has nothing to do with the Bluetooth function on the TCU. They are independent of one another.

I am not as familiar with the TCU messages, so I can only think of three potential causes of a "phone connected" message.

1) Bluetooth is disabled
2) A Bluetoth phone is not paired with the car
3) The TCU does not support Bluetooth, and the wired handset is not connected

Just to go back and double-check, what is the part number of your TCU module? I looked back through one of your other threads, and you mentioned a part number 84.10-9 120 844 that you were helping install in a friend's car. I originally said that was a good PN, but I must have misread the number. Part number 84.10-9 120 844 does not support Bluetooth.

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2000 E38 750iL Highline Edition, Upgraded with the lastest 2006 X5 Electronics
MKIV Navigation, 16:9 Display, Bluetooth, TV/Video with Backup Camera, Sirius, and Aux Input