Have you ever DRIVEN a luxury car? I'm going to say no, since you said something so presumptous. She didn't ask for any indication of your "knowledge" of all things automobile related, okay? I imagine since Mr. X is going to go for a BMW at all, then they are quite aware--and prepared for--the related costs.
Mrs. X, I'm going to have to say get the 530i. I used to think the C class Mercedes were a good idea. They're designed for people who basically want the "name," but aren't going to get the quality. The 330i reminds me, no offense, of an earlier model Toyota Tercel.
It's like getting an iBook vs. a PowerBook. iBooks are fine for basic computer stuff like Word and internet, but they can't hold a candle to the PowerBook in terms of pure speed and capability.
In my mind, it isn't about the neighbors. It's about the quality.