For the rear seat footwell lighting, yes you need to cut rectangualr holes for the lights that you add. There are marked areas on the inside of the carpet - easy to follow. Look for the thread, there are photographs to guide you.

As for the front footwells, even my "basic" E53 3.0 diesel with few "premium" options (no DSP, navigation, roof rails, sun roof) has front footwell lights. Perhaps your bulbs are simply burned out? If so, replace them with the Osram LED bulb - I did and you can see MUCH better. Do the same for the glove-box. Autozone or Advance runs them on sale, about $10 each. They also are the same for door puddle lights and license plate lights (no error codes thrown, no cold mode re-coding is required).

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2002 Euro X5 (E53) 3.0 diesel (M57)
5 speed manual with UUC short shifter.
Pre-xDrive NV125 transfer case (chain & gears).
Factory Xenon headlights, Spyder LED tail lights
Updated vortex crankcase breather.
Motorsport dead pedal, factory fire extinguisher, factory first aid kit, factory F&R mud flaps, factory PDC

Bilstein B6 shocks F&R
Redline oil has replaced "lifetime" fluids (F&R diff, manual transmission, transfer case and P/S).
Dimple magnetic drain plugs in all compartments.