That's exactly the same way that I installed it.
I bought a used 'junker' iPod on eBay, filled it with the my music library (40GB) and dedicated it to the X5. The only times I take it out are to add music or change playlists.

Happy 2006!

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2006 4.4i
Jet Black/Truffle Brown
Cold/Premium/Rear Climate/Sport
Adj Ride Ht./Navi/Premium Sound
IcelinkPlus/iPod