So after two years of being unhappy with various iPod FM modulators and car adapters, I finally bit the bullet and bought a brand-new Alpine car stereo head unit. The CDA-9857 is awesome, and fully compatible with any 3G+ iPod. It plugs in directly through the multipin port and basically takes over the iPod. It's very cool -- a little Alpine logo even appears on the iPod display! This unit has a 3-line text display and the volume control knob doubles as the song selector spinner. And yes, you can select the next song without interrupting the song that's playing. They're brand-new, reasonably priced, and apparently very much in demand. So if you're looking for the "right" way to put your iPod on wheels, this is the only way to go!
http://www.alpine-usa.com/en/products/product.php?model=CDA-9857
http://www.alpine-usa.com/en/products/product.php?model=CDA-9857