As previously stated this is a bacterial/mould problem.
For your info
Microbial contaminants (bacteria, mold, fungus) are naturally present in the air. Moisture, darkness, and warmth are the 3 key ingredients necessary for microbial growth to occur on surfaces. Moisture (condensation) forms on the evaporator as it cools the air. Some of this moisture drains out of the system, but some of this moisture remains in the dark plenum chamber. The naturally-occurring microbial contaminants utilize the moisture that does not drain out of the A/C system as a food source & breeding ground. Once the A/C system is shut off, the dark plenum chamber warms up to a temperature that stimulates and accellerates microbial growth. Air conditioning systems in an automobile may be especially vulnerable, because their smaller size leaves less room for air circulation inside the system once it is turned off. Once colonized by fungi, A/C systems may continually or sporadically emit noxious odors or sensitizing products that affect the occupants (Source: Fungal Colonization of Automobile Air Conditioning Systems).
Why all the advise about drilling holes and crap I don't know!!! and taking it to BMW wtf? When I first turned on my A/C after just buying the car it smelled terrible - a really strong odour - I simply stopped at Halfords and bought a can of A/C sanitiser for about £7. All you do (following the instructions on the can) is leave the engine running, turn the A/C on and the fan on FULL, set the unit to RECIRCULATE, then stand the aerosol on the passenger floor and press the button to let it do it's thing and shut the door, then wait for 10 mins. The aerosol will spray a heavy spray of antibacterial/fungicide into the air for about 2 minutes which then gets sucked through your A/C system and sanitises it. After the 10 mins are up simply remove the spent aerosol, mop up all the spray from your leather (the only downside) and enjoy a fresh smelling A/C system. It's just coming up to a year since I did mine and it still smells as fresh as a daisy.
Also, I won't swear to it but I have always heard the advice given by a member above for years - run your AC for at least 10 mins a month on as cold a setting as it can, or leave it on constantly. Yes, of course this creates more condensation BUT by constantly using the A/C you are constantly replacing the condensation so it doesn't have a chance (or has less of a chance) to get affected by bactera - Afterall A/C isn't just about cooling, the real design is to remove moisture from the air (condition it) - in the winter when you get into your car and the windows are misted up inside and you sit there while the blower tries to clear it, simply press the A/C button and see the difference it makes having DRY air blown onto them.