The fidelity of FM broadcast is much too low for high fidelity sound, even when it’s perfect. Unless you rip stuff at a very high compression rate (making quality secondary to size) the fidelity of the iPod is much higher than any FM station. Because of this, the best solution is some kind of line out and in rather than FM. Until all this shit is bluetooth a direct line is the way to go.

I’ve re-ripped all of my stuff since the old Rio 500 128 meg smartmedia days when Apple’s 160 kbps mp3 seemed high end. I use 192 kbps AAC which is pretty high quality. Others use lossless for everything which is super high quaulity (and super big). So, anyway, not to knock your solution, whatever works… just that there are fidelity issues with FM.