Will use the car for now and will look if it get worse/better... Will update the thread of course... Thanks for now. Much appreciated.

Noise is from front drive shaft spline connection
 

Zemi,

I am sure you gave up on the problem and/or sold the car, but for others who find this thread I am almost certain of the cause of your noise...because I had the exact same problem with my e53, 75,000 miles.

It is the front drive shaft spline connection which is why it sounds like it is coming right under the driver's seat. This connection is notorious and failure is certain and will leave you on the side of the road, 86 miles from home which is only a $500 tow away. (Can you guess how I know this?) The noise is caused by the dry and rusty splines moving in and out against each other as the flex-disk flexes. Perhaps attempting to lubricate the splines would cure the noise but may only mask the worn splines which will almost certainly fail...someday.

Check your spline for wear and replace with a modified (longer) drive shaft spline which can be welded onto your existing front drive shaft by a competent machine shop ($200 for part, $75 for welding). While you're at it replace the flex-disk for the front shaft.

Because of the now longer drive shaft (by 3/4") you will have to loosen your transfer case and slide back about 1/2" in order to put the new shaft into place. This is a royal pain in the butt and requires E-torx sockets and wrenches. (Note: you need to drop both exhaust and rear drive shaft to do this job.)

This should help: http://www.xoutpost.com/bmw-sav-foru...haft-pics.html