Another small update ...
I've been researching my options lately for a better way to integrate an iPod into the standard head unit. There is an aux-in under the driver's arm rest but needing to have the iPod tethered to it at all times was becoming a bit of a PITA especially when trying to change songs as the lead was too short (too long and it just got in the way of everything). The obvious solutions were a Dynavin head unit or a Dension gateway, both of which are quite expensive considering I just wanted to listen to the iPod with a little less clutter.
Someone suggested I should try and pick up a Bluetooth Aux-In adapter which I never heard of before. After some research on various owner clubs and reading reviews on Amazon, I bit the bullet and picked up a Blackberry Bluetooth Stereo Gateway, a Sony Bluetooth adapter for my iPod, a mini USB cable and a short male-to-male 3.5mm audio lead.
With everything neatly installed under the arm rest, I plugged the Blackberry into the USB charging port (it's just a Kensington 12V USB adapter) and primed the car (The E90 doesn't supply power to the 12V outputs until the car had the key in the ignition and the Start button has been pressed once).
Next step was inserting the Bluetooth adapter into the iPod (this particular adapter uses a negligible amount of the iPod's battery and doesn't need to be recharged), turning it on and it automatically paired with the Blackberry device almost instantly.
I'm certainly no audiophile but the sound, to me at least, is the same as when the iPod was connected directly to the Aux-In. The only downside is that the iPod can't be charged when the BT adapter is connected but the iPod Classic I'm using has a 36 hour playback life so it's just a simple case of keeping an eye on the battery life and charging when required. If I was using the iPod function of my iPhone, I wouldn't need the BT adapter plus I could charge the phone as normal through the in-car cradle.
The result is a perfect (and comparatively cheap) solution for those who want a wireless iPod integration in their car. I paid ?39 for the Blackberry Gateway and ?35 for the Sony Bluetooth adapter plus a couple of quid for the cables, so around ?100 maximum for everything required. It's all reversible and has the added bonus of if I sell the car, I can take these with me to the next car.