So why did BMW use Nikasil in their M60 engine blocks?  Why didn’t they know there might be problems?

The following is from a BMW press release on the 530i in 1994.  (The press release speaks of “Galnikal” but the M60 alloy is commonly referred to Nikasil these days):

"A  new technology  further contributes to the V-8’s light weight of only approximately 470 pounds including electricals and cooling.  Instead of the steel cylinder  liners used by many carmakers in aluminum blocks, long-wearing  cylinder walls are created by depositing a “dispersion layer” of nickel on the  aluminum via galvanic action.  Called Galnikal, this process was used for some years in BMW motorcycle engines before being introduced in the  V-8 engine, so it’s not an untried technology-just an advanced one."

So the same alloy had been used in BMW motorcycles w/no issues.

The following is from a conversation between a BMW motorcycle tech and a member of the 530I mailing list:

"I was having lunch this weekend in Big Sur. A BMW motorcycle group pulled in to the same venue. I asked for the “head gearhead.” We had a great conversation and, of course,  I brought up Nikasil. It turns out the higher temperatures of the motorcycle engine(air cooled) keeps the sulfur from doing damage. This fits, since one of the things BMW initially tried was to change the cylinder temperature by retuning the computer. He said that wouldn’t work in the cars because it would change the engine too much to pass smog.  So it wasn’t a total stupid move for BMW to use Nikasil in their car engines in the US - it just turned out that the operating conditions in the cars were different enough to cause some problems, sometimes, in some places, in some cars."