I recently noticed the seat belt was not retracting quickly. The dealer told me the mechanism is fine but need to replace the belt. They sais the part that goes over my chest has hardened. Is the a way I can clean it or soften it?

soap & water???

Yes, soap and water.
This is the ideal time to clean both sides of the top runner on B-pillar , scrape off the build up of gunge then finish off with some mr sheene or similar, this helps the belt run freely over it.
If that all does not help
http://www.bimmerboard.com/forums/posts/290248/

And pls complete your profile, is that 740 an E32 or E38?