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Dude, I feel your pain. I literally do. This happened to me on a business trip that I drove to San Diego. I bought a used Q50S, drove it to SD for work and put on 500 miles -- engine went into limp mode and coasted safely into an Infiniti dealership (thank god). Turns out it needed a new engine due to engine sludge. Car had 25k miles and I JUST BOUGHT IT. Dealer refused to honor warranty and dealer I purchased from refused to talk to me. After my lawyer got involved, dealer where I bought it from settled. Trust me, this process sucks and I know your pain -- only thing you can do is make sure you got EVERY document handy with facts and dates. BMW is only going to pick it a part, then that dealer's head will call BMW Corp and request warranty work which most likely will be denied automatically due to the sludge.
How did they find the sludge? Did they literally take apart the engine cover, etc and find sludge? Do they have pics they can send you? My case settled because SD Infiniti agreed with me that that amount of sludge would not occur after driving 500 miles on a car that was purchased at 25k miles (gross negligence from 3rd party dealer).
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