After a 1400 mile trip with the iPod setup in the Jetta, I had mostly positive reactions.
I heard a lot of bad reviews of various FM transmitter products for the iPod, and decided to go with the Belkin Tunecast after hearing a couple positive reviews. It transmits your iPod audio on one of four FM stations, 88.1, 88.3, 88.5, and 88.7. That was enough of a range where only in Berkeley, CA did I find trouble getting one of those bands entirely clear (there are a lot of university, non-profit, and religious radio stations at that end of the dial). It wasn't too difficult to jump to 88.7 if I was using 88.1 and got taken over by Jesus talk, though I'd usually wait for a straight, open piece of road to fumble with the buttons. I also picked up an auto charger from belkin that worked flawlessly.
While the FM spectrum does cut off some of the high and low end sound, the bigger obvious problem was the occasional interference and hiss sound if the radio volume was up high while the iPod was lower. I would definitely prefer to connect the headphone port directly into an auxillary input on my car's stereo, if there was one. The other big problem was holding the iPod in place, where I could still see it while I was driving. I heard this Radio Shack cell phone holder worked well, but the stock Jetta cup holders did a fairly good job. The biggest problem seemed to be the smooth chrome case, which slipped around in the cupholders as road vibrations shook it slightly.
I'm actually surprised at that last point. Apple is selling lots of iPods, and as people integrate them into their lives, they'll need lots of products that I can't seem to find. I know there are tons of cases and holders for iPods, but in search after search at Google, I can't find a decent neoprene pack to run with my iPod, I can't find an easy way to integrate it with my home stereo (beyond a mini-headphone-to-rca cable), and I can't find a kit to add an aux-in to my Jetta's stock stereo system (and a nice in-car holder). I know there's a cottage industry of iPod-related products, but I can't seem to find any good ones.