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I have created a page on one of my websites dedicated to discussing the bugs and ideosyncrasise of the 505. You can see it here: http://www.ddsystems.com.au/other/magellanmio-cyclo-505/
Your questions:
1. Do I think the issues are resolved in v4.0? They have definitely worked on the sensor problems and pairing is better and easier BUT it still loses the speed/cadence sensor if you stop riding and move the 505 away from your bike (ie take it in to the coffee shop so it doesn't get stolen) and then its difficult to get it to pair up again. As I said its improved, and I have every reason to believe they will get this problem licked soon.
2. Overall I'm now pretty happy with the 505. I can now work around the sensor problems (see link above), Strava upload is much easier that with a Garmin, Mapping is good and importantly its a lot cheaper than a Garmin 1000 and has many of its features. Of course please bear in mind that I'm concentrating on the problems because most reviewers don't spend a lot of time with a product and often miss all the little problems. I don't mention the good things but as this review points out its a very usable device and a very good price.
3. Would I recommend purchase? It depends on your acceptance of substandard features. This unit is just not good enough as released with 3.1 software. Hell you couldn't even swipe between screens. With 4.0 its usable (and swipe is available) but still has many annoyances. I believe that further updates will follow quickly. I absolutely hate all the stupid confirmations that are always popping up and covering the screen, and that is an indication that the programmers haven't got a clue about user interface design. If you want a bike computer with mapping and think the Garmin 810 is too expensive, and you are happy to put up with some annoyances then the 505 is a good option, because it has more features than the 810 at a much better price (once you include the cost of maps). If you don't need mapping buy the Garmin 510 you'll be getting a mature and well developed product. If money isn't an issue definitely buy the Garmin 1000.
5. No I haven't used Bluetooth sensors. Giving that it crashes badly when I try to pair up my phone, I wouldn't be at all surprised if the Bluetooth module is buggy also.

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