Re: IPod in your car.
Definitely stay away from the FM transmitter. Very unreliable. Cuts out all the time. Quality is subpar, generally only as good as the strength of the radio signal. (ie: wouldn't do you very much good if you were driving in the middle of nowhere through the desert or something).
There is also the proverbial TAPE method (assuming that your head unit still has a tape deck), in which you use one of those cassette tapes to 1/8" mini stereo plug. Also subpar.
Your best bet is the new head unit. The new unit will allow for proper connection of the ipod with in-dash video capabilities. If you want quality this is the why I would go. I hardly ever use the ipod in the car, except for several hour long roadtrips, that I use the TAPE option.