Same USB connection issue with my Infiniti. I THINK I found my solution, although I see others thought so and the problem recurred the next day or two.
Leading up to the issue, I updated my Macbook Pro's iTunes to 12.0.1.26, then (thankfully) I backed up my entire phone before updating to iOS 8.1. After a prolonged hang up, the phone didn't have the 'don't disconnect' warning, so I disconnected it, intending to plug it back in…only to find the red arrow of death on the phone indicating I had to reinstall everything, lose contacts, etc. Having no other option, I did all that, was able to finish all the updates and (again, thankfully) had the previous backup to reinstall contacts, music, apps, etc. Then, the problems described in this thread: connects via USB or bluetooth, pandora will play, iTunes would only play one song (the first in the library), no ability to skip or select other songs-only navigate the screens, etc. I couldn't even make the changes on the phone's screen directly (no, I wasn't driving at that point!)
I read through all the options on this thread and did the following:
-plugged my phone into the computer. it did its automatic synch which didn't take long since I just did it a couple days ago.
-on the computer's iTunes window, selected my iPhone
-on the side window, selected "Settings"
-selected "Music". Here's where I noticed that my previous synch settings didn't carry over into the update to 12.0.1.26. The "Synch Music" option was not selected. So, I selected it. Now all the custom synch options I had for the phone weren't grayed out. Although the memory element bar on the bottom of the screen looked like the music was on the phone, it evidently was not. On the lower right side of the window, selected the option to apply these settings, then synched again. All the music was reloaded onto the phone (note: the memory allocation never appeared to change before or after this reload…it originally looked like it was full of music).
-after this re-synch, I tested it in the car via bluetooth and via usb connection AFTER deleting the connections between the car and phone, then adding it again for the car to recognize. Both the USB and bluetooth connections now work as they should: I can not only navigate through the steering wheel's controls (always could), but also select options and the phone responds as it should, I can skip songs in Pandora and in iTunes, etc.
A few differences for my navigation/selection trouble solution from others on this thread:
-I did not reboot my phone. I saw this as a possible common element to the fix earlier, so figured I'd point this out.
-I did not change the phone's settings away from "show all music" as many others did.
-I am not streaming my music like others are hoping to do. However, my (presumably) saved music issue had the same navigation and selection issues described, even in Pandora. So I'm hoping the gremlin that is bugging everyone magically resolves if you follow these steps.
-The re-connect to the car's system may have been a contributor to the success, in part or the only necessary piece…I don't know.
Hope this helps someone. Wow, that was an irritating (and uncharacteristically Apple) process over the last few days. I postponed updating the iOS for a month or so hoping all the bugs inevitable with updates would have been resolved. Here's hoping it stays fixed. If you don't see any follow up comments from me in the next few days, this was a permanent fix.