I bought a '99 328i this past week with about 66,000 miles on it. This afternoon the check engine light came on. According to the manual this just means its in need of service. The "inspection" notification that shows up when I first start it says its about 4,950 miles overdue. Guess the guy that owned it before me decided to pawn it off before paying for the inspection.

What exactly does this inspection consist of? Should it be done at a dealer? Or can other shops do it? About how much will this inspection cost?

This is Inspection 2 that is normally done at 60,000 miles,120,000miles

Inspection one is 30,000; 90,000 miles.In between are all the Oil service (more than an oil change).

Either go to a dealer or independent BMW specialist.