I had the same problem, it seems the 'fix' is to put the usb cable in first let the ipod start up and link with the car then stick the aux cable in, since then its been fine.
Thanks for that. Will try your method out tomorrow. How did you figure that out? I have a Bytestor 8GB USB stick from Amazon ( £11.70) and have used it for yonks with no problems, highly recommended.