Bunky-
I spoke to someone at BMW North America, and you are right, it has to do with the new phone and the software not supporting the idrive and cable in the center console. I have a brand new 3 series, and my iPhone 3G worked perfectly, and now I get the same message you get, not supported for charging, but it still plays, but what is the purpose if I go on a long trip and cant charge my phone at the same time.
Thanks for posting that product, I will look into it and hope that in the mean time BMW will release a new adapter to give to us...or of course, make us buy.