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It is the Cylinder Head Gasket. And unless I am wrong, it would not be covered under warranty. I have never seen one do that before on any material I have read on the boards...well one that was running correctly with just a small oil leak unless it's requiring a quart every 1K miles or so.
To me it screams that this head has been removed at one point or another. I would suggest finding a good Indy shop that works on BMW's...swing by and show him the picture and the parts diagram and see what he has to say.
Have you had any coolant leaks that you know of?
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