I got caught in a bit of rain yesterday and ended up hitting a puddle of water that was deeper than I expected (an ambulance was running code in the rain, so I figured it was a life/death situation and got out of the way).  Anyway, immediately afterwards, the temperature sensor on my dash dropped to -40F and started flashing and the A/C started blowing hot.  I got home and found a wire dangling loose under the front driver's corner.  The wire is on the same harness as the horn and driver's side fog light.

I posted on another BMW site but responses are slow.  Was hoping somone here could shed some light.  

I have read that the A/C system is computer controlled on the E46, and that this sensor if unplugged or damaged would cause the computer to block the compressor from engaging.  

Any ideas where this third wire plugs into?  I've checked my Bentley manual and I am either missing it or its not there.

Thanks in advance.

The temperature sensor is located somewhere behind the front bumper.
Sounds like it`s either damaged or unplugged like you said. Heavy rain is a common cause for ruining the temp. sensor.

Haven`t had to fix mine yet, so can`t give any more specific advice.

Not sure if this will help, but My E36 has the temp sensor on front air duct by the grill, on the drivers side.  I dont know what would cause your AC to act up except maybe the comfort relay possibly?

On the E46 we call the ambient temp sensor the curb feeler.  It is actually mounted so it sticks out just a little bit from the right front bumper.  it is also in the same harness that goes to the AC compressor clutch (if I remember correctly).  I would bet you need to go to BMW for the parts on this one.