A great post from Dave Zeckhausen......
This is the clutch delay valve (CDV) that haunts the E39 5-Series owners (except M5) by screwing up their shifting. I've already personally removed over 150 of these and mailed out modified CDVs to more than 100 other folks so they could do it themselves. We figured out the CDV might be the culprit to the E39 shifting woes when it was noted that the M5 didn't have one. That's why I was so astonished to find one in the Z8.
The CDV on the Z8 had the appearance of the one that is shown 2nd from the left in the photo below. It looks just like the one in the 540i 6-Speed and a quick check of the BMW parts CD confirmed that the Z8 and 540i indeed share the same part.
For a complete description of the CDV, it's operation, and why it's bad, you should check out my CDV web page at: http://www.zeckhausen.com/CDV.htm