Does it work?

Yes, it works great! I use a Griffin AutoPilot to charge the iPod and give me an easy to find play/pause button. The AutoPilot has an adjustable gain control (high or low), which I find handy. I've only heard the radio distort once, and I was able to switch the gain to low. With this the sound is plenty loud enough for me (some people found that the radio's telephone input couldn't go as loud as they liked).

When I first installed this I even tried playing the same track off of a cd and the iPod to see if they sounded similar. Given that I had to fiddle a little bit to switch back and forth, I couldn't tell any big difference. I can hear the difference in sound from mp3s that have very low bit rates, so I think this means that modifying the radio was worth it.

It's worked for over a year now, even while my iPod seemingly died and was revived (hint: if your old iPod clicks when it starts up and then reboots, you don't need a new iPod). I posted this because it's straightforward (though you need to know how to solder), cheap, and might just work great for you too!