Xbox says the mechanism for accessing music on iPod Touch and iPhone is different than that of iPod.
I resent the signs that I see in stores that say iPod=iPhone. My brand new Kenwood deck did the same thing but I had to switch to a data 500 cable and use it as an external disc changer to get it to work. It uses the different folders in my iPhone as discs in the deck.
I was very dissappointed this week when I opened my Xbox 360 this week. Of coure the first thing I wanted to do was plug up the iPhone and get some tunes. I think Apple and MS need to make this a top integrated compatibility priority. Both pieces of equipment have been released long enough to get patched. I think the CD deck realm needs to get looked into also. There are obviously the same problems (iPhone related) in that field.
For now, I am using my Xbox 360 to access the music stored on my laptop wirelessly through Windows Media Player. It was a little trying to set up b/c my network is a mess, but under normal circumstances it would be very easy to do. Xbox 360 does most of the work. Still, I'd love to just get it right off my iPhone as I charge it and play a game.