BMW presented the precursor to the X3 as a concept vehicle unveiled at the Detroit Auto Show in 2003. Dubbed the xActivity, BMW previewed a SAV based on the 3 Series platform, without windows and a vestigial roof.
When the BMW X3 premiered in late 2003, BMW announced that it would employ a new four-wheel drive system to power it and the X5, a system marketed as xDrive that would intervene transparently to the driver before the driver was aware of instability.
All models are equipped with the BMW xDrive All Wheel Drive system, with a default 40:60 torque split between the front and rear axles and has the ability to direct all the torque to either axle.
2005 model year changes consisted of Bluetooth could actually be ordered straight from the factory (part of the Premium Package) and functioned without dealer intervention. The interior was upgraded with more consistent plastic panels. Also instead of having grey carpeting which was present on all 2004 X3s, the 2005 X3 came with carpeting that matched the leather ordered. There was a slightly softer suspension and the front fenders became one piece, as opposed to the two piece found on 2004 models.
Source: Wikipedia, 2012