It is not absurd IMO. The water cooled alternator provides benefits in terms of alternator temperature stability. The reasoning is that absolute temperature isn't as important as the variability in terms of alternator failures. When you have low engine speed, and low vehicle speed (ie no cooling), with high charging loads (ie every time you start it up at idle) you get temperature spikes. Water cooled alternators provide a more consistent alternator temperature. It is the same reason your engine is liquid cooled, liquid conducts heat better than air does. And you can get the coolant in to precisely where you want to cool the alternator, not just the outside as with air cooling.

It is also a pretty sophisticated alternator in terms of other design features.

I have read that it is also supposed to be quieter, but I would think you could solve that problem with more sound insulation under the hood.

I would fully expect that it fails more often as it is more complicated. Sort of the BMW engineering design ethos. But I would say it is over-engineered, not silly, as there are good reasons to use liquid cooling.

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2007 X3 3.0si, 6 MT, Premium, White

Retired:
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2003 X5 3.0 Steptronic, Premium, Titanium Silver
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2004 Z4 3.0 Premium, Sport, SMG, Maldives Blue