Either way, you can definitely install a 2 DIN unit. I only wondered about DSP because some aftermarket head units will not work with it. Any good stereo install shop will know your needs and make recommendations for you. There is actually a thread on here that shows a 2DIN being installed in an E39 and the work behind it.
Click here for E39 Fatboy Thread
In terms of aftermarket head units, I recommend anything Alpine and Kenwood makes some good stuff as well. These units allow for Bluetooth and iPod integration along with navigation and more. I highly recommend the Alpine IVA W203/P1