It's been a long time since I've done this so memory is a bit hazy, but a couple of points:
1) The cable needs to appear 'loaded' for the head to notice the cable - this is done by putting a 300k? ohm resistor between the two legs. This makes the aux option show up in the head unit.
2) If you turn on the car w/ just the resistors, the aux will show up if you have nothing plugged into the aux cable (no ipod/phone,etc) - the second you do, more than likely the aux option will disappear. The reason for this is a bit electronics heavy - fix is to put a capacitor or two in the circuit path to 'uncouple' the head and the ipod.
3) The caps mentioned in 2 work, but a bad side effect of this is to create a filter that blocks high frequencies - the sound seems 'muffled' - I fixed this by replacing the capacitor with a ground loop isolator.
Point 3 has the added benefit of also removing the alternator noise you would get with some of those cheaper cables...
You can google and find the very simple schematic for the cable and make one yourself for about ~10 bucks. Otherwise, I recommend buying the OEM cable for $$$ - it will work, but point 3 would still apply I think...
Note: Here's the
official schematic - look at page 14 circuit B1. You can see the 2 capacitors and 1 300k resistor. Total parts cost = I would bet less than $2 for BMW lol.
-gc