Update for my North Texas peeps
They are saying now that it isn't a rod issue or a valvetronic issue, though the knocking they said would lead them to believe it could be either of those. They have narrowed it down to the transmission. Here is what they told me:
They disconnected the torque converter from the fly wheel and the sound went away. So per their PUMA they re-connected the torque converter and tightened it. They said it was off by 190, but that still didn't fix the knocking. They put in a tc request to have the transmission replaced. The tc came back and said that this knocking noise was normal. They said it develops sometimes in these cars. The solution is a rubber plug ordered from Germany that dampens/eliminates the knocking.
While I do not agree with the "this is normal" comment, it appears that this issue is a known defect by BMW. So they have a fix for it if the defect rears its ugly head. It echos up from below the engine and into the engine bay, thus giving the illusion that it is a bad vanos or rod.
The part will be here in 4 weeks, at which point they'll put it on and verify the knocking is gone. While they can't guarantee this will fix the issue, they are nearly 100% positive it will.
Only thing that annoys me is when I got my car back from BMW of Dallas it was...less than desirable. First time I ever took my car there I got it back smelling like an ash tray and food between the seats. They gave me a free interior/exterior detail. So I took it in and got it back with soap all over the paint and a mildew smell inside (they had shampooed the carpets and the rugs, put the rugs on the carpets both still wet, closed all the windows, and sat the car in texas heat). I didn't want to go back this time, but classic bmw sent me there (for those who know the story, you know why classic sent me there).
This time I get the car back and my full tank of gas is now empty, there are a LOT of extra miles on the car, there is soap all over the paint after having told them on check-in not to wash the car because I had just waxed it and I knew that their wash didn't always remove all the soap, my radio was blasting when I turned the car on, and the guy who brought my car to the service drive was getting WAY to heavy on the gas for it to be a cold start in 52 degree temps.
There were number of other little things that I noted about the car. When I spoke to customer service she as actually impressed about all the tiny details I noticed were different in the car saying, "It isn't often I get someone calling me who knows details like that. You obviously really take care of your car."
Anyways, enough of my rant. Good news is the car is back, I've requested to have the part sent to Classic to be put on the car, and then it'll be all set to put the charge pipe, down pipe, and new cobb ap on! WOOT!