So what exactly (mechanically) does the Sport button do? Did a search and found many speaking of it, but what does it actually do?

Enhances steering sensitivity, e.g., makes steering input react faster by electonically quicking steering ratio; and enhances throttle sensitivity producing a quicker acting response toinputs electronically.

I think it lowers the car too.

with the smg tranny when i hit the sport buttons, it feels like the shift points are at higher rpms, i might be wrong though

On my '05, the sport button does not lower the car. Read the owners manual.

I read that on the 07 2.5i, it starts up the Flux Capacitor. :buttrock

It's actually a nawz button :shifty