There is a TSB on this failure. It is a gasket that fails in the transmission. It looks like this when it happens:Originally Posted by bmarsh
The TSB is 24 05 94 "Pendulum Shifting, Delayed Engagement or Adapter Case Leak" BMW offers a repair kit for this failure, PN 24 27 1 423 311.
I have been down this road before on my old 95 525iA. I purchased an aftermarket rebuild kit and a friend and I rebuilt it in his garage. Everything inside the transmission at 145K miles was perfect except for those gaskets.
HTH.