bluetooth issue with newly purchased 2004 S60

My 2004 S60 has the Motorola Bluetooth system. When I press the button to enter the setup mode, nothing happens when I say the commands. It is almost as if the microphone is not working. It also keeps on saying no more phones can be paired.Does anyone know what the issue can be? Also is there a way to completely factory reset the system?
There also is what looks like a wired handset in the center console, No idea what it is and cannot see it in any of the books.