Post a pic of the spot under the light panel. My understanding is that it is the intended location of the A/V switch module which for some reason apparently the previous owner mounted somewhere else entirely. Quite amazing really that the cables were long enough!
To answer your questions... the VCR unit mounted in the trunk behind the folded seat (see the small photo with the rectangular box that occupies a heck of a lot of trunk space) while the DVD unit (if so equipped) mounted above the nav computer. They were controlled by remote controls. See other photos for the DVD unit and DVD remote control.
Here are the two setups in schematic form:
RealOEM.com * BMW E53 X5 4.4i Entertainment Systems