The build date of my car is July 8, 2004.
I think I figured out at least part of the iPod issue. I have the iPod touch which isn't "officially" supported. I tried my friend's 1st generation Nano and I didn't have the weird issue when selecting songs from the artists list. The capacity is smaller though. I want to try it with an 80 gig to see if it does the same thing.
So, if you have an iPod touch and the BMW iPod interface you can probably expect odd behavior. Hopefully BMW will update their software to support newer generation iPods.