Remember that it is said to be scheduled for 2009. By then, there will be superior versions of the iPhone, probably with GPS. I don't think Apple is developing a whole car-system; it will be more in the style of a dock.
Imagine: you put for iPhone in the dock and suddenly your car is being controlled by mac os x.
The iPhone has the capabilities (or will have) to connect to your computer, connect to your network, to present videos (internal o external), audio, web-access (perhaps as a modem), it can do maps, maybe even routing, add a GPS to that, in and out spoken commands and some software so it can take advantages of the car speed and maybe even diagnosis sensors, and you have, as I said, Mac OS X controlling your car!