Which letter? The OP posted a scan of the letter reffering to the 4.6 as an X5 M in his first post. I presume you are talking about a letter regarding the whole 'MX5' naming issue?

I personally don't believe that. Do you really think if BMW wanted to give a car M status it would be prevented from doing so PURELY on the basis of that naming issue? I doubt it - they would have just called it an XM5 or an X5 M (which they of course did recently). So why would that have been a problem back then? BMW would have known about the existence of the MX5 as they've been out for ever, and would never have even thought twice about naming their own car after a Mazda even at the initial brains storming stage, let alone let it get to the level of legal troubles.

Also, don't M cars actually get breathed on by the M division? Meaning that if the 4.6 was ever produced with the intention of it being an M they would have been built with M specific parts. And so it wouldn't have been possible to drop the M in a last minute re-brand? Just thinking out loud