In Reply to: water in the oil posted by Josh Bates on December 25, 1999 at 18:13:26:
Dana's right.....it sounds like it's most likely a bad head gasket or cracked head. I would have thought the machine shop that resurfaced your head would have tested it for cracks (or at least asked you if you wanted it tested) or did they?
Were you careful torquing the head in increments using the proper torquing pattern?
I have also heard of incidents where a head was resurfaced, but the locating pins that position the head weren't shaved to accomodate the decreased head thickness. The result was that the head wouldn't fully seat on the block since the pins were essentially too long and torque of the head was impossible. This wasn't on a BMW (either a VW or Toyota) and I think it's unlikely with a 2002, knowing the configuration of the locating pins on the '02's, but it's a thought.
Are you sure it's water in the oil/combustion chamber? I have heard of a bad brake booster resulting in brake fluid getting burned in the combustion process. The unmistakable smell of coolant at the tailpipe will be the telltale sign of whether or not it's coolant.