Damn, you guys are right on. It is the sealing sleeve. I read that a shop should do this repair as its tricky seating the sleeve or something along those lines. Plus I have the pan with both fill/drain bolts on the bottom. How the hell does that work!?

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2005 BMW X5 4.4 Sport Upgrades:

Dinan Cold Air Intake
Dinan Stage II Software
Akebono Euro Cermaic Pads
Brembo Rotors
Titan Silver Metal Gauge Rings
DICE IPOD Module
Hardwired Passport 9500ix Radar/Laser Detector