Advice about transfer case

[mstimpy8]

I bought my 2005 X5 4 months ago from my local BMW dealer. It is out of warranty. 2 days after I got it, the 4x4 warning light came on. I took it to the dealer and they told me that nothing is wrong and that it was just a dirty wheel sensor and not to worry about it. The 4x4 warning light has continued to come more and more frequently along with the ABS and Brake warning lights. I decided to take it to a shop the specializes in BMW's where they ran a diagnostic test and found that my transfer case is shot and it needs to be replaced. They said that the dealer never reset the fault codes and that almost all the codes were the same. They also told me that there is no such diagnosis as "a dirty wheel sensor". They believe that the dealership had to have known that this was an issue before they sold it to me. My father was the sales manager at this BMW dealership for 25 years and its things like this that made him retire early.

My question is, does anyone think that I have any chance of getting the dealership to do this repair for free? I know that I bought it "as is" but you would expect the dealer to address the issue before selling it. I was quoted $3500 to have it fixed at the the place that specializes in BMW's. I would bet that the dealer will want close to double that price.

Any info would be great! I'm just not sure if I have a fighting chance.