In my experience the only time you need a LOC is if you are adding a sub. Without it the radio maxes out around have volume. I usually do not add one and I have no issues. I haven ever installed that radio into a E46 so I'm not 100% sure if it would need it since I know older Pioneers needed it. You have the correct dash kit. Our Harness wit steering wheel controls is $60 and then another $20 to make it plug directly into the radio. Here's a link just in case you have problems with what you ordered.
shop.enfigcarstereo.com
BMW 3 Series 1999-2006 (E46) Radio Replacement Parts – Enfig Car Stereo
