Yes you might aswell give it a try. My car has only got a 2.5 straight 6 and is supposed to average 27mpg but im getting about 35mpg over the last 1150 miles of motorway and A roads so I'll be very impressed if the M5 can get 28mpg from a 4.4 v8 twin turbo.
The biggest scam the Stealers pull is not letting you supply your own parts for fitting because they are not BMW approved even though they supply the same parts that are rebranded.
Just done a bit of research and suppliers such as Textar, Jurid, & Pagid supply BMW with their discs/pads and they are re-branded as BMW. So BMW saying they are Genuine BMW parts is a load of rubbish as they are supplied by the above companies.
Ive only ever used an aftermarket panel filter once before and that was on an old 1997 Honda Accord 2.2 vtec, it was a Pipercross one and I just gave both sides a bit of a wipe before putting in the airbox to make sure there was no excess oil and there were no issues with the MAF.
Welcome to the forum. Ive had a quick search but not found any info on the error code http://www.datsc.com/tabid/122/OBD-Error-Code/U1168/Diagnostics/BMW/Default.aspx I'll have another look though, failing that im sure someone on here will know.
Yes an oiled filter can screw around with the MAF which has led to people having to replace them. I would advise a panel filter over an oiled cone filter any day of the week. I replaced my air filter a couple of weeks ago with a Crossland filter from Eurocarparts. there are about 3 brands they offer so just pick 1 as they are all quite cheap, think I paid about 7 or 8 pounds :D
I think even the 118i is a 2.0 engine, anyway its better to have a smaller engine rear wheel drive car with 50/50 weight distribution than a 3.0 front wheel drive car :)