Your 2004 E53 has the pre-wiring for the Aux input. This was present in all X5s built from October 2002 on. You just need to buy the Aux input kit from BMW and install it. Here is the install guide to give you a sense of what is involved.

http://www.ge39.com/files/EBADoc11512-auxin.pdf

I do not think that the radios with MP3 capability came out until 2005. So, that would require a radio upgrade. The statement that all cars made after 8/02 have this radio is a little misleading. The radios got more features over time. The first feature was Aux input. Then, the radios got Sirius about a year later. Then, the radios got MP3 in 2005. Also, to get MP3, you would have to upgrade the CD changer.

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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