I believe the symptom with fog from the A/C vents is caused by the A/C drain line being clogged up, the one that drips water to the ground. Try cleaning that out and see if that helps. Also look at Johan and Sean's website,
http://bmwe32.student.utwente.nl/ The A/C and heater stuff is called IHKA.
Your car has a cabin air filter (called a microfilter) which can become quite filthy and thus the air from the vents not really fresh. Here's a link with instructions on how to change it:
http://www.nmia.com/~dgnrg/page_2.htm, along with many others.
I couldn't find a link for an owner's manual. Repost your question at
www.roadfly.org for more help.