According to the Nitrobahn blog:
The popular misconception was corrected when Ms. Anne Schmidt-Possiwal, a tour guide at the Munich BMW Museum told a New York Times reporter Mr Stephen Williams, that the BMW roundel logo never had anything to do with propellers. Instead, the logo was originally meant to represent the flag colors of the free state of Bavaria.On the snappily named linked 318ti.org forum, 'SNOWti' posted;
Needless to say, Williams was surprised and he did some digging into the matter, but when he reached out to BMW for clarification, Dave Buchko, a BMW spokesman repeated the same old spinning propeller version. But soon enough Buchko realized his mistake and generously admitted in an e-mail to NYTimes that Ms. Anne Schmidt-Possiwal had been correct.
The idea that the blue and white had anything to do with spinning propellers comes from a 1929 advertisement,which featured aircraft with the image of the Roundel in the rotating propellers. This advertisement came at the beginning of the Great Depression, which coincided with BMW acquiring the license to build Pratt & Whitney radial aircraft engines.It is a neat advert, and a neater way of using the logo. The reality of the original design is as interesting though. Nitrobahn again:
The interior had 4 quadrants in blue and white the colors of the Bavarian Free State. The colours were used in the opposed order of the flag apparently because it was illegal to use a national symbol in commercial trademarks.As usual the true story is a bit more complex, and a lot more interesting than the oft-repeated legend.