Yes it’s part of the 4.25 the other 0.5 litres will be within the engine.
The sensors can just fail over time, oil changes can also cause a sensor to stop working properly. My 335i one was working but then became unreliable after a service. Only real way to diagnose is to drop oil out and measure what oil comes out of sump.
replacing stem seals at a dealer will be rather expensive as it requires cylinder head removing to do it properly. You can get kits that fill cylinder with compressed air to hold valves closed so they can be changed by just removing camshafts and valve springs and leaving head on. Whether a dealer would do it this way I don’t know.
Like I say head removal to do properly and that’s how I would do it so I could decoke and relap valves after.