I'm not exactly sure if what I'm about to suggest is what you have been asking about. But maybe try shutting down your iPhone (press and hold power button and slide to off) and turn it back on again. Then try connecting it to your USB using the iPhone/iPod Cable.
So when I first got my X3 I found out that I wasn't able to scroll through my song list / playlist using the steering wheel knob when iPhone 4s or 1st gen iPod touch (both updated to latest iOS available) was connected through USB (using iPhone cable). But when my phone (same phone I use to connect through USB) was connected through bluetooth and streamed audio through bluetooth, I was able to use the steering wheel knob to choose skip or previous track. When back to BMW and didn't get any fix and they say that there was no software errors. My sales person suggested to me to try rebooting the iPhone which I tried and after that I was able to browse through my playlist (which appear in your dashboard right under your speedometer) using the knob on the steering wheel. I tried the same trick for my iPod touch and it work perfectly as well.
But after about a month or so I got the same problem again, but the rebooting trick works and problem fixed.
Hope this fix your problem!
Cheers.