The reason why I find it suspicious is that even if you change your oil, but
do not physically reset the oil monitor, it'll come on telling you to change
oil.  If it was able to monitor the oil condition, it would know that the
oil is fresh and would not come on.  At least that's how it is on the
US-spec BMWs.

Ah, that explains a lot. :)

Cheers,

Pete

OK, found this from way back in 1997:

<cut & pasted article from DesignNews.com>

Capacitive sensor measures oil quality
A unique oil-quality sensor under evaluation by Cummins, Detroit Diesel,
and BMW, may someday signal drivers when their oil needs changing. It's
based on a low-cost ceramic capacitive sensor that measures variations
in the dielectric constant of the oil. New motor oil has a dielectric
constant of about 2.19, but after about 400 hours use, the antioxidant
additives in the oil break down and the value climbs to roughly 3.20.
The sensor works much like any capacitive sensor. The substance to be
measured (oil) passes freely between two small, parallel metal plates
spaced roughly 0.010 to 0.020 inches apart. With the area and spacing
known, the capacitance value becomes a function only of two values: the
dielectric constant of the oil itself, and one major stumbling
block--temperature.
"Nobody knew how to block off the temperature effect and only measure
the aging of the oil," says Kyong M. Park, vice president of R&D at
Kavlico (Moorpark, CA), the sensor's manufacturer. His patented
solution: incorporate an analog signal conditioner consisting of
feedback resistors for offsets and gain, and select one resistor that
changes resistance in direct proportion to oil's dielectric-constant
variation with temperature.
Park also overcame a soot contamination problem present in diesel
engines. "We developed a special silicon-based coating to prevent the
soot from sticking to the sensor," he explains.
A serendipitous advantage of the Kavlico sensor is that water
contamination-a fairly common and damaging situation-can also be
detected because the dielectric constant of water is 87. "A one-percent
contamination of the oil with water or coolant will increase the
dielectric constant enough to trigger an alarm," says Park.
Kavlico isn't the only company working on an oil-quality sensor. Control
Devices (Standish, ME) has joined forces with the University of Maine to
produce one; Sandia National Laboratory has a sensor in development; and
SRI International (Menlo Park, CA) has produced a laboratory prototype
for a auto-manufacturer customer. Park isn't worried. "{Other methods}
measure the oil's acidity, which is less reliable," he says.
Surprisingly, the capacitive concept isn't new. "I remember reading a
Popular Science article 30 years ago about this," says Park. "But nobody
ever made a production sensor before that could do it."

This was published years ago, and BMW advertise cars as having an 'oil
quality sensor' - so it looks like they've been fitting them for a while
(Certainly since the fugly 5-series was launched). Might not be in the
specs. of an E39, though.

Obviously a great one, because he made it up and yet you beleived him.
It does no such thing.  It does all the calculations based on running
time, number of starts, etc.  No magic oil sensors...