Go for the new engine!
I know, the cost sucks! I spent about the same on replacing mine, but felt it was worth it at the time with crazy car prices.
I have plans to replace the X5, but having spent to much on it last year, I'm holding on to it until the right deal shows up, since I still really enjoy driving it.
Point is, if you like your X5, it is a great vehicle worth the extra 4k for a new block. Not a POS rustbucket not worth taking care of.
With a new block, you will also get other wear parts replaced.
You have lower mileage than I had when mine (120k) went bad, and I don't know what went wrong with your engine. It's still high mileage enough there are other parts that are slowly wearing down too. like this
(link to post by sophisticated redneck in regards to chain tensioner)
I had a leaking oilpan seal, that BMW wanted $$$$ to replace, but was not needed with new engine etc.
Anyway, whatever went wrong with my engine, including a bad injector; It caused scoring of a cylinder and block was toast. If there is any chance that happened to your engine, if you don't go for a replacement block, insist on them scoping the cylinders.
Also insist on all new injectors at the same time. Just as preventative measure.