Thank you for your continued interest in this topic.
The iPod is the latest firmware and the car is too - updated them both.
Yes it is trashy service. Clearly they can't be compatible with everything, but Apple are a BMW strategic partner. There are only a few Apple products relatively speaking and mine is relatively new, but not brand spanking new so in the ideal zone where compatibility should not be an issue.
I had a few more technical ideas that I exhausted last night - using a ferrite core around the cable to reduce high frequency mush. But last night I had the follow fault appear right in front of my eyes - one I have had several times but never watched happen in action and see the chain of events (or lack of events):-
Radio power on, ignition off, engine been off for an hour - so everything electrically as calm as you can be. iPod was not showing as present immediately, which sometimes it is, so I guess it was clear already something was not quite right. But it connected and began playing from where it left off. All well and good. Half way through the track, grey Apple logo lock-up. I didn't touch a thing. So this is way more than not sending the correct shut off signal. There is a fundamental issue between the two devices (car and player).
My phone and another USB power converter were also removed from the car - there was nothing in the car that was not original equipment, so no chance of blaming stray noise.
My last hope to prove its the car is to connect an old nano and see if that does it. But truth is that these are such different devices, it would have to be a gross design error to also be faulty on that, so I am guessing I won't prove it is the car, but won't prove it is noth either using this method. But I will have taken every possible option to help myself out in the absence of help from BMW (The dealer basically updated the software and said it was not the car - we could not unlock your iPod they said - what that means is they could not be bothered to unlock it and investigate properly - they updated the software, found no fault codes and concluded (QED) the car is fine - this is a very German thing - there is no contemplation that they might be wrong - they assume that their fault detection is perfect as well as their original design.
I will be taking this issue back to BMW HQ once I have exhausted all the possible options, which I am bear to doing,
I hope I don't have to end up buying a DICE or Dension interface to get around this - that would be a joke on a car of this value.