It is a problem with the oil level sending unit, which lives on the very
bottom of the motor, and is easy to replace. You can buy the sesnor on eBay,
and your mechanic should have absolutely no trouble installing it on the
next oil change.

I have an '00 323 with the same problem -- the oil light comes on about
30-ish seconds after the engine is started, and remains on for 30-ish
seconds and goes out, then never comes on again. The oil level is excellent.

I think this is one of those over-engineered circuits, and you can ignore
the false signal.

More than likely the sensor is burned out.  Replacing it is a
fairly simple affair and you can time it to coincide with an oil
change.  Just make sure to check the oil regularly with the
dipstick until you get the sensor repaired.  (And be glad you
have an E46 rather than an E90/E92, which has no dipstick and
relies solely on the electronic oil level sensor.)

The sensor is about a $100 part.  If you have the sedan or the
wagon it's dead easy.  The sensor bolts into the bottom of the
sump and you can drain the oil and then undo the three nuts that
hold it on and unclip the wire and replace the sensor.  Make sure
you use a new gasket.  If you can change your own oil, you can
replace the sensor on a sedan or a wagon.

With a coupe (like mine) or a convertible it gets more
complicated because there's a big honkin' body reinforcement
plate in the way.  The reinforcement plate comes off with 8
bolts.  Be aware that you'll need a fairly long breaker bar or an
impact gun to undo the bolts on the reinforcement plate; they're
on there pretty good.  Use new bolts when you replace the
reinforcement plate, and follow the procedure in the shop manual
carefully.  The bolts are to be tightened in three stages IIRC;
don't have the shop manual in front of me at the moment.

One frequent cause of the sensor burning out is leaving the
ignition key turned on while draining the oil.  Sometimes people
get in the bad habit of turning the key on while working on a car
so they can listen to the car radio.  In the case of the E46 BMW
having the sensor completely dry for an extended period will burn
out the sensor.  Don't do that.  Unfortunately many professional
technicians (although I would *hope* not the dealership
mechanics!) are in this bad habit as well.