I am certainly no expert on the subject, but after about 7 months of trying to answer this question, here is what I have discovered and what is working for me.
The iPhone does not have the necessary hardware to send a stereo bluetooth signal, thus you can not stream music wirelessly. Bummer... I know. This would solve a lot of issues with integrating the iphone into the car. There is a small adapter you can buy that will transmit the signal in stereo bluetooth, but who needs ANOTHER adapter for the iphone to fumble with and loose? This would also require a bluetooth enable stereo system or bluetooth FM transmitter.
Here is the set up I've been using. My main goal was to have hands free phone capability, listen to music through my car stereo, and have a place to hold and charge my phone that I could easily see and reach (while trying to minimize the BUZZING annoyance from the car speakers). I didn't want to have to professionally install anything or make holes in my dash unnecessarily.
This was not easy to do! I took me many different product attempts and research....
Here is what is working the best for me: Kensington: LiquidAUX Deluxe (99.99 from the apple store, but 74.99+shipping on Amazon) - which is a accessory outlet (cigarette lighter) charger and cradle combo. It also has a audio output cable if you have a aux input on your stereo (I don't, so I use a cassette adapter) built in. One of the coolest things is that it comes with a small simple wireless remote control to attach to the steering wheel.
I combined this with a bluetooth speaker phone (or a headset would work) and am very happy with the functionality I'm getting.
My iphone fits on the cradles and charges even with the case still on, and has re-sizeable arms to keep everything in place. The neck is strong enough to hold up the iphone without too much bouncing around and is fairly flexible. It rotates easily so the cover flow view is easy to switch to (which is very cool to use cover flow with the remote). The aux cord is pretty short, but there is an extension cord included. Also the distance the arm puts from the stereo is enough to almost eliminate the buzzing sounds (this will vary from car to car). Other cradles I tried couldn't do this because they attached to the windshield or dash and were too close to the stereo.
If a call comes in, the music fades out and I can activate my bluetooth speaker, take the call and when I hang up the music starts up again where I left off.
Simple, no installation necessary, and covers all the functions I was looking for. After trying 4-5 different cradles, FM transmitters, messing with lots of wires, suction cups, clips, and several near accidents, it is really nice to have a simple little system that covers all the bases without the hassle and constant fumbling.
The only issue I really had was that my cigarette lighter is horizontal as opposed to vertical which the design is aimed at), so finding a good position was a little tricky, but I managed find a very comfortable and viewable location after a little twisting and bending...
(If you don't have a aux input or a cassette player in your car this won't be as effective, but it is still a good charger/cradle).
http://store.apple.com/us/product/TR951LL/A?fnode=home/shopipod/ipod_accessories/caraudio&mco=NzY3NjYw