This is something that is actually a lot harder than you would think. i know of at least one person who has been able to do it, but it took them about 12 hours of work.
You would need to buy the LCD unit (~800 USD) and then the MKIII or MKIV nav computer (~1400), the wiring harness that goes between the two (~100), and i think a new piece for behind the dash that holds the radio and climate controls there.
So, you are looking at a very pricey solution to navigation. However, this is the most asethically(sp?) pleasing solution for the E46.
You are better off going out to your local audio shop and requesting the Pioneer AVICN1 for ~1700 USD or getting them online from $1300+.
Read this topic, it has a bunch of nav unit suggestions. http://www.bmw-forums.com/forum/topic20712.html
If you are really serious about the BMW nav system, go to E46fanatics.com and read/search their forums for a DIY or help with bmw nav.