That's a guibo. It's a small (OK, slightly bigger than "small") rubber thing which attaches the transmission output shaft to the driveshaft. The idea here is that it isolates the two halves of the drivetrain from noise and sudden impacts.
The guibo is also sometimes called a, "flex disc," but that's just plain retarded. Guibo.
Unfortunately, it's also prone to fairly significant wear and doing things like dumping the clutch tend to eat it away fairly quickly. Since this 325is hasn't really been driven all that hard, I suspect that this is the original guibo—and I also think it's held up fairly well given that the car has clocked around 125,000 miles. Of course, it could be a replacement and in that case, this guibo is in awful shape. Either way, the picture indicates that there are big chunks of rubber missing around the boltholes that are used to attaching the guibo to the transmission.
But the important part here is that I actually got the part off, which means I've got practically the entire transmission exposed and ready to remove. The only things left before cracking open bellhousing bolts are the shift linkage and the reverse light switch...and figuring out some way to actually support the transmission when I pull it all off. I'm using the only jack I've got to support the engine, which means that I'll have nothing to support the assuredly 60+ lb. transmission when I do actually slide it down out of the car.
So if you don't hear from me tomorrow, it's because I've broken my arms clean off trying to catch the transmission.
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