You're exactly right. The flap is either not closing all the way or the seal isn't working anymore. Rob says fixing it is a PITA, I would assume so altho I've never done it. Another solution is to install a heater valve in the line coming from the engine, then run a cable to a hidden lever under the dash. Closed in the summer, open in the winter. Why BMW didn't put heater valves on these "luxury" cars is beyond me. The 2002's have them.