[Obioban]

According to BMW's marketing material at the time, "because it's a drivers car, the M5 is available exclusively in SMG". How far things have changed :P

I'd say the real reason is because it's not at all in keeping with the character of the car. The e39 M5 is relaxed, comfortable, easy fast. It also doesn't need to be shifted quickly to get the most out of it because it has power at all RPM. The SMG is not relaxed/comfortable/easy fast-- you have to work to make it smooth. Its benefit is that it makes it easier to keep it in the powerband on track-- the M5 isn't great on track and the powerband is everywhere.

I see no technical limitations on it-- same transmission as the e46 M3 (SMG trans and 6mt trans were the same trans-- just with a human or a hydraulic robot operating it), same ecu as the e46 M3 (talks to the smg ecu).