The EWS II system on the Z3 (and other BMWs) is a "Drive-Away Protection" system. Switching on the ignition (which could be done easily by hot-wiring the switch or screw-drivering the key barrel) initiates the full start sequence with alarm off, fuel pump up to pressure, ignition made live, etc.
When the key/barrel is turned to start, the detector ring needs to read the key when the starter turns. Various codes are swapped at that time. If that is not successful, the fuel pump and ignition are switched off and the engine dies.
The car's electronics are programmed to read the right key. My correctly cut key turns the barrel and ignition switch and starts the engine but the code is absent so no more sparks or juice.
The two connecting wires on the detector ring (per WCA) disappear into a sleeve in the steering column shroud. My best bet is probably to follow them to exercise any connectors and break out the WD40.
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