The sensor for the temp is in the front of the car, in the intake that cools the front brakes. It can easily get broken off in a small accident and never replaced. It looks like a tiny plastic stick with a pair of wires going to it. I bought the replacement part from a dealer, and rigged the wires back together - soon enough I had the proper ambient temp.
Past ownership: 1987 325is, 1988 325i, 1995 325is, 1996 325i Convertible, 1994 325is.
Current ownership (wife's): 2006 X3 3.0i
Future ownership: 3-series of some sort My office. My law blog.