Okay, I've got an update on my issue. Please see above posts for my problem, but basically the car was telling me the VTG (transfer case) was not coded. I got ahold of the SSS progman (see http://forums.bimmerforums.com/forum...play.php?f=233
for more info on this). What this will allow you to do, if you are bold, is to code/program your car with updates just as the dealer would do.
So, I decided to take the risk to do it myself. And it worked!! My car has been re-coded and coding was added to the VTG. Now, all functions work (4x4, DSC, ABS) and no errors!! The procedure was really simple. After installing SSS on your computer, hook up a power supply to your car, hook up OBD cable, start SSS. SSS will read you car, tell you what your options installed on your car are and what the current software on your car is. It them shows you what it plans to do (called a measures plan) and then you execute it. It took over 2 hours to update my car, but now it works just fine!! So happy!!
Now, why didn't I just go to a dealer to do this? My car is out of warranty and I heard it could take up to 12 hours to update car so not sure how much it would be. I didn't want to spend that money, plus I live in a rural area where there is no dealer within 150 miles. So, I took the chance and it worked.
Just thought I'd post this in case someone else has a similar issue and it could be as simple as getting it coded by yourself or dealer.