OK, it sounds like you have the phone module installed, and I would bet it is a ULF module. The "Activate Phone" message is what a Bluetooth module says when it is not paired to a phone. So, you should double-check your pairing process for a ULF module.

Turn the car off (ignition position 0)
Push and hold the pairing button in the center console
Turn the car on to the accessory position (ignition position 1)
Continue holding the pairing button for another few seconds.
You should see the message "Bluetooth Pairing" on the nav screen.
Pair your phone using the passcode on the laminated card with the owners manual

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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