There's a interesting thread on what exactly constitutes a management car here
http://www.e90post.com/forums/showthread.php?t=506035
I've always thought that BMW had a lot of 'managers', so I suspect there's a good bit more going on than meets the eye. But I would think that you aren't going to get many 5 series MSport cars on contract hire.
On the BMW list, the way that it works is that BMW post 'new' cars to the list in the morning, usually first thing. Dealers can then reserve them for a couple of hours at no charge and if they don't commit, the car becomes free again. So a dealer can reserve a car for you, but you have to agree to buy it (+ deposit) within a short period - no thinking about it over the weekend. And clearly, they can get a car on their own account as well.
I would guess that with your 535, the car did actually go to the dealer - I don't think BMW produce the pics, it's done by the dealer - and he couldn't shift it, so it went back on the list for another dealer to pick up.
Also, its interesting what you say about the smoothness of the 6 cyl petrol over the diesel. Totally agree with you there, my old 6-cyl petrol really was so smooth and accelerated like a hot knife going through butter. The 4 cyl. diesel is actually faster than my 6-cyl. petrol was, but it feels quite different - its definitely a diesel. That's indicated by the fuel figures - I really do get twice the mpg (50mpg on local runs) out of the 218bhp diesel than I did out of the straight 6.
I still sometimes miss the straight 6 purr though ...