i don't have an ipod, but i use a V3R FM transmitter with my mp3 player. i have the one pictured below. there is a usb port and a port for a jack. you plug it into the cigarette lighter and tune your radio to the pre programmed station and it plays through your speakers.
Spend $20 at Radio Shack and get the FM transmitter that plugs into the headphone Jack. Works like a charm.
As an employee of radioshack, they're not $20, more like $50 for a bulky piece of crap that you'll be bombarded to buy a service plan for and will end up returning in two weeks anyway. I think you're asking for a headache by using an FM transmitter, especially if you live close to a large city.
I would spend a few more bucks and pick up a Direct Connect system like this
The wireless FM transmitter should work well, however, if you are in a large metro area, you might have trouble finding a station that will work. I find that it is also dependent on the car. My wife has a wireless FM transmitter and it works great in her Commander, but, it does not work at all in my wrangler.
As far as the wired FM transmitters, I have had great results with those. I had one in my old Mustang for the XM radio and never had a problem, even in big cities like NYC and Philadelphia. In fact, I am about to order one for my 1997 Wrangler. Go to amazon.com and search "Scosche Audio FM Modulator - Universal" that will get you a good place to start.
Just my $.02 and my personal experiences talking, I am sure many others will chime in as well.
I installed a Sony stereo in mine, better sound, better options. Mine came with an aux port built into the front, a USB port built into the front, and a cable coming out the back for an Ipod connection. I've only used it once, I think it can control the Ipod to some degree. It's an obsolete stereo model now, but they run about a hundred or less if you can find them. WalMart was where I got mine. Also came with a remote and a detachable face.
I can plug in a large USB drive with several ablums, and it reads all with no problem.
I live on long island...probably one of the most populated suburbs and also 20 minutes from one of the busiest cities..NYC. My FM transmitter works perfect..never a problem. As long as there's a couple "dead" stations you can tune into. Even if there's a little music or talking heard behind the static of the station it still works perfect.