I bought my 330xi this week, 'iPoded my BMW', and can report successful use of a 40GB iPod Photo. mazachan - where did you get the unit installed? I had mine put in at Perillo for what its worth.
Other posters have it right - if you love your iPod, you'll love it even more in your BMW - beats the heck out of a CD changer and the sound quality is far superior to those wireless gizmos that feed off of your antenna + FM frequency 88.3. But I do hope they aim a bit higher with the interface next go-round, and offer a bit more flexibility with selecting tracks.