From Honest John
A Sport button in all versions crisps up the response from the accelerator pedal, as well as adding a little more weight to the steering feel. An SMG (sequential manual gearbox) automated manual transmission is an option in the Z4 but frankly is best avoided, so choose the standard auto if you don’t fancy a standard manual ’box.
Car and Driver
It didn't take anyone here more than five minutes behind the wheel of this Z4 to begin squawking about the car's confounded gearbox. The SMG is basically a manual with an electrohydraulically actuated clutch and gearshifts. You shift gears by flipping small "paddles" mounted on the steering wheel or by jockeying the curious gearshift lever on the center console. There is also an automatic mode in which the transmission shifts gears on its own like a traditional automatic. The SMG is supposed to combine the sportiness of a manual gearbox with the convenience of an automatic. Nothing personal, but in our case we decided it failed miserably at both tasks.
Gearshifts were slow and awkward in either of the system's two modes (the M3 comes with a more sophisticated SMG with six shift programs). Activating the sport mode, which is supposed to shorten shift times, didn't help much. The clutch was slow to engage, and this led to lots of lurching and head wagging when shifting up through the gears. Although you could smooth the action with very carefully timed throttle modulation during shifts, many drivers whined that the SMG made it appear as if they were back in high school and just learning to drive a manual transmission.
Cold weather made the pauses between gear selections even longer, as if the gearbox couldn't make up its mind what to do. Several times drivers had to restart the Z4 to reset the SMG's computer so it could put itself in gear. Just figuring out what gear the transmission was in seemed like work. That was in large part because the digital display between the tach and speedometer gauges was difficult to see and discern. With the top down on a sunny day, the display was nearly invisible. The reflective and gentle Patrick Bedard seemed to go over the edge when he declaimed, "This is a dumb-ass transmission, with more slack in its response than the U.S. Postal Service." Word of these problems has apparently gotten around, because BMW says only six percent of buyers opt for the SMG.
http://www.smgsociety.com/troubleshooting/6-speed-smg-troubleshooting/