How can I adjust the alarm sensitivity on my wifes 320D compact 2004, factory alarm?

I'm not familiar with the newer models, though the older models had the box mounted under the rear seat. The adjustments were there. The instructions should be in your Owner's Manual.

Cheers I'll check there and let you know how I get on. It's a 3 door hatchback btw

I had found a 2004 E class User's Manual Online. (Page 89) Mentions nothing about sensitivity adjustments. Only addresses arming, dis-arming, and towing selections. From that I can only assume that it may be a faulty switch. Either door, trunk/hatch lid or hood/bonnet. Or it could be something as simple as a poor ground or hot lead in the wiring of those switches.