I notice a difference with it too. I have some of the same songs on my iPod that I hear on let's say 20 on 20 and there is a big difference in quality. I didn't notice this when I had XM Radio at first on my 2004 X5 and I always thought it sounded good. Pandora is a good option too.

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2007 328i Sport, Monaco Blue
2011 X35D - sold -Space Grey
2004 X5 4.4i - sold - Kalahari Beige
2001 X5 3.0i - sold - Pearl Beige
2006 325i Sport, Sonora Beige
2000 323i - sold - Sienna Red