Did lots of searching on this and another X5 forum for info regarding my AC issue and came to the conclusion that my Final Stage Unit FSU or what is now called the Blower Regulator Controller has gone bad. I did a FSU change on my 2002 and would have imagined BMW addressed this common issue already.
Here is a short DIY write up to help others who are having the same issue.
Description of issue:
AC on Auto will turn off and only blow out warm air, with fan on full blast. This happened only after a few minutes in the car. Freon is full and all the motors are working.
What you need:
- e70 x5 (my 2007 X5 E70)
- Blower regulator (P#64119265892) $120
RealOEM.com * BMW E70 X5 3.0si ELECTRIC PARTS FOR AC UNIT
- Torx Bit T20
- Phillips screw driver
Disclaimer: in no way does reading this post authorize you to do this repair yourself. You should always service your BMW at an authorized BMW Service point. Death and injury may/will result if you undertake this repair.
Step1:
Remove the lower trim instrument panel under the glove compartment, passenger side, like you are accessing the darn fuse box. 3 phillips screw holds the lower trim in place.
Step2:
Remove 2 screws of the air duct to gain access to the blower. T20
Step3:
Drop the blower by releasing 4 more T20 screws. Once the blower unit is released you will see the FSU or blower regulator, pictured in white/grey unit.
* Caution removing the blower unit, as it is tight and will need some wiggling and angling around to remove or else you will break something. *
Step4:
Disconnect 2 plug connections and release 2 more T20 screws.
This is what the unit looks like compared side by side:

Heat sinks.

Re-install in reverse done save your AC.
This is about a 30min job as the removal and re-install of the blower took about 20mins. You have to work upside down on your back in a very awkward and tight position, my back is sore today.
The reliably of the E70 is pretty crappy. Tranny replaced/water pump failed on freeway/valve cover gaskets and a whole slew of seals replaced/Fuel pump relay for starting issues/Alarm unit failed/ 2 wheel bearings replaced/tons of trims replaced/now FSU and I only have 60K mi of gentle kids trekking.
Don't get me wrong I love to wrenching on cars but not feeling confident that I might be stranded in the middle of somewhere with my family, is not a good feeling to have for an ultimate driving machine....