Water getting into the headlight units seems to be a pretty common problem on most 90s BMWs, with the E39 5 Series clearly being one of the worst affected - I've seen scores of people with this problem online, ranging from patches of condensation like mine to full blown fish tanks in the lower half of the lens and it would appear that no matter how serious the leak it's still a right pain to get shut of. Unless money is no object don't even consider a replacement, they start at £120 currently and go up from there.
I only began to notice condensation in my n/s light until after fitting the angel-eye rings, so assuming I'd not reassembled it correctly I removed the unit, blew away the droplets with a hair-dryer and reset the seal, as have countless others, to no avail. As the condensation spread over the whole face of the lens I began to scour message-boards looking for a successful fix and believe I've found a technique that does indeed work...
*** If your headlight unit has been damaged in a shunt, the lens is cracked, has a stone chip through it or if the rubber-seal has perished enough to no longer fill the gap then I'm afraid there's no pretty way to fix this problem and you'll have to replace the unit or it'll fail an MOT.
Dismantling the Headlamp unit :
1. Remove the 5 wiring-loom sockets from the back of each headlight.
2. Remove the 4 screws holding the light-cluster in place, located on the slam-panel and down the back of the cluster, using an 8mm wrench.
3. Pull the light-cluster forward from the inner side until the lug on the outer corner can be slid out and the cluster removed.
4. Slide off the strip of body-coloured trim and rubber seal from the bottom of the headlight.
Reverse the process to re-fit.
Drying the Lens :
Use pliers to slide off the 2 metals-clips on each of the round glass inner-lenses. The glass discs should then be easily removable [trickier with angel-eye rings glued to them], to get some air flow through to the outer-lens and, if you have any, mop away any moisture on the main area of the lens with a cloth.
The best way to dry the unit is to place the front section of the headlamp in a warm, arid place and just leave it for a day or two. As time is usually of the essence though, the most popular method is the good old hair-dryer. Condensation on the main lens area is easy to blow away from the rear, but the corner-indicator is in a separate pod where little air gets to it, so heat the outside of the corner-lens for a few minutes, then let it [and the hair-dryer] cool for a few minutes and evaporate and repeat the process until the drops are gone.
Refreshing the Seal :
1. Gently prize the rubber-seal from its recess around the rim of the rear section of the headlight.
2. Wash the seal using cold water, dry it completely and coat it entirely with a thin layer of petroleum-jelly [Vaseline].
3. Carefully press the seal back into its recess facing the opposite way it came out. [The original outer-facing edge should still be visible by the slim indent made by the lip on the front-section.] * Avoid stretching or compressing the seal while pushing it into the groove as this makes it difficult to get the right length to fit and you may need to rearrange it quite a bit to reach.
Sealing around the Corner-Indicator lens :
** If refreshing the seal does not work or the condensation is concentrated around the corner-indicator lens then there may be a minor break in the solid-seal here, so the only solution is to get messy with sealant.
I'd recommend a clear-drying, silicone-based multi-purpose sealant, although any old bathroom sealant will work and it's not too visible anyway with the light back in. Apply sealant into the gap of about 3mm that runs around the rim of the corner-indicator lens and press it right down into the seal with a screwdriver, this should give a nice, tight seal and show up any leak areas where blobs of sealant can be seen inside the lens. Apply more sealant on top and smooth round the entire edge with a finger. Be sure to wipe as much wet sealant from the light as possible, as well as rubbing away any leftover sealant from the lens after it has dried.