The sound generator is essentially fake, but it is generated by the induction of air. Only fake bit being that it acts on a kind of resonating drum skin that is 'tuned' by BMW to sound just right. On the E85 it is a mechanical device, it does not use the speakers. It merely amplifies the natural noises and pipes them into the cabin.
To go back to my old-skool Ford days, the sound generator is the modern equivalent of putting a K&N filter on the carburettor, whereas the back box delete is akin to fitting a cherry bomb.
The two sounds are different and a lot depends on whether you want to hear it for yourself or want the whole town to know you just got home. :wink:
Also, with the sound generator, you can make it louder by removing one or both pieces of foam rom the pipe that ducts the sound into the cabin. The sound only really occurs when you put your foot down. Whilst I've never had the back box delete, I have read many times that it can create a constant drone at certain speeds/revs, and there's not much you can do to alleviate that other than change gear or slow down.