As T-Town M5 mentioned, I've been
complaining about iPhone 2.0 software stopping the address book sync'ing for some time now (I love how high migh site appears in a Google search for "BMW iPhone"

).
It appears most 2008 BMW's not affected, a handful of older cars with software updates also in the clear but not all.
Not limited to BMW either, there's a large number of Chrysler owners who have something called uConnect (?) that it no longer works with, along with Mercedes, Jeep, Land Rover, and more.
Apple Support Thread - BMW
Apple Support Thread - Chrysler
Apple very much aware of this issue and I'm expecting a fix off them in the coming weeks. In the meantime you'll have to try and get by without voice-dial or contacts on the iDrive.
I tried downgrading to 1.1.4 but it all went disasterously wrong and I had an iBrick for a few hours. I've seen realised where I went wrong (I force flashed iPod touch firmware onto an iPhone...oops) so I'm tempted to try downgrading again until 2.01 released.