In the continuing saga of X5 vs iPhone....
Today when I plugged the iPhone into the $400 USB/iPod Y adapter cable to recharge a dead battery our X5 recognized the iPhone and allowed me to control the iPod app via the iDrive -- Dang it!
Just when I was beginning to enjoy the broken iPhone integration, where our X5 refused to recognize the "media" on our our iPhone BUT allowed other iPhone apps (e.g. internet radio) to play via the X5's sound system, it goes and works like it was described in the sales literature.
I'm still not sure what causes this functionality flip. But after a little fiddling around I was able to get the X5 to ignore the iPod part of the iPhone and play music from an internet radio app via the x5's sound system again.

Now all I need to do is figure out how to reliably keep it broken.
Funf Dreisig
p.s. what I did to get the X5's sound system to play the sound from iPhone apps (and NOT the iPod app) was to select the sound source without using the iDrive. But YMMV