Your problem is that you had burned the original CD incorrectly and that crashed your MKIII. The image you are seeing now is the TV module, not your MKIII nav computer. Follow the posts in this thread. It will talk about the cause and give tips on recovery.

http://www.xoutpost.com/electronics/...-work-now.html

It is perfectly OK to install the V32 CD on your MKIII. Although it only has updates for the MKIV nav computer, it still contians the latest OS for the MKIII. Also, it is perfectly OK to do an OS downgrade. The MKIII will accept an earlier version OS release CD and to the update (downgrade) without any other modification. You can downgrade and upgrade as much as you want.

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SOLD
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