There are several ways to connect any iPod (or MP3 player) to a car audio system. There are also many opinions on which works better than others. Here is my synopsis:
b Best Way:
Direct connection via the dock connector or headphone jack to a mini-jack input into your car stereo. Not many low/moderate-end cars have this feature yet, but it is becoming more popular. Some aftermarket auto stereo units have this feature. There are also some after-market, fairly expensive adaptors that hook into your existing car stereo that will provide a direct connection. Pretty slick, but pricey. If money is no object, a clean way to go. See:
http://www.myradiostore.us/auxadapters/blitzsafe/blitzsafe-m-link-ipod-interface .html
http://www.theistore.com/ipod2car.html
http://www.mp3yourcar.com/productdetails.asp?productID=175
b Better:
Connect your iPod to a cassette adaptor and play your tunes through your car's cassette player. In my opinion (via testing in my car using the accessories I have), it has better fidelity than FM transmitters. Some new cars no longer come with a cassette player, so it may not be an option.
b Good:
Attach one of the many FM transmitter devices to your iPod and play the tunes through an unused FM station. Some noticeable degradation and distortion may be heard - depending on the sensitivity of your ears and the airwave congestion in your area.
b Marginal:
Attach an external speaker system to the iPod and play it in the car. Workable, but not too good - unless you spring for a $300+ Bose (or similar) system. But why? Only if your vehicle has no Stereo system, perhaps.
Whichever you choose, power the iPod through a DC adapter running from the car. See the reviews below for choices on all the accessories mentioned above, and more.
See the reviews of various accessories at the iPodLounge here:
http://www.ipodlounge.com/index.php/reviews/review_grades/
I have read both positive and negative reviews of each method, and within method, there are great variations in performance of different manufacture's systems and peoples opinions of their performance. Some cassette adaptors work poorly, some better. I got lucky with my choices and have not had any big problems, yet...
BTW - I have a Belkin cassette adaptor and an iTrip Mini FM transmitter (as well as a Newer Technology RoadTrip!+). Using the same song in the same car, I found that the cassette adaptor worked significantly better for me than the FM transmitters.