5/4/2011 5:48:35 PM.947: TEL --> GT : Display Text: Layout=0x00: Flags=CLS F0="ACTIVATE PHONE"

This TCU should be in pairing mode now. Did it appear in a search from the phone?


Edit: some background.

1) Buried in the BMW documentation is says the X5 TCU won't pair unless the driver's seatbelt is fitted. While this is probably calculated form the VIN, your May 2006 TCU must have shipped in an X3 or X5 (or the last M3 that rolled off the line).

2) Some say the TCU is in pairing mode for the first 2 minutes without pressing the MFL buttons. You saw SEARCHING in that state and could not pair. Maybe finding a way to clear all paired phones is one way to progress.