Not exactly Apple news & rumors, but OK.
Here is a link to a popular setup using a holder form a company called Panavise. I got their catalog in the mail but have not yet done anything with it. The "vise" is really for cellphones, but it is adjustable, and can fit an ipod.
Note that the setup in this url is a gen2 ipod, but I think the vise would be able to take on the smaller ipod.
The way that it connects to your car is a mounting, also sold by Panavise, that is particular to your vehicle. They have ones that sit above the AC, next to the AC, and next to the radio. All you do is get the mounting that fits your car and connect the vise to that. You'll notice that the wire for sound out is hidden within a little conduit and comes out near the cigarette lighter. Not totally neat and tidy, but good enough in my opinion.
The remaining piece of the puzzle would be an adapter from your cd player's aux/cd changer input that is hidden in the guts of the dash. Unless of course you have an input directly on your stereo face.
Post again if you go through with the project and show us some photos!
http://forums.vwvortex.com/zerothread?id=936075
Edit: It's not a conduit, it's the curley cord from the car charger, wrapped around the blue sound cord. Still a sweet setup.