I have a 328i with Premium Sound Package, no Nav, no BMW Assist. When I plug an iPod mini with a y-cable into the USB port and the 3.5mm into the AUX port, the iPod is not seen by the car. The iPod goes into the same mode as if syncing with a computer and charging, and the iPod does not show up in the "External Devices" on the CD/Multimode menu on iDrive. Because the iPod is in this mode, I can't play any music with it. The audio controls on the steering wheel can't be used to select a song.
When I plug my iPhone4 into the same connectors, the iPhone doesn't show up on the iDrive menu either, but I can play music (or anything else) using the iPhone apps such as iTunes or Pandora. However, the steering wheel controls can't be used to select songs on the iPhone, either.
If I plug a USB stick into the USB socket, I can see and play songs on the USB stick, select songs, etc. I can see the songs on iDrive.
A couple of photos:
Is this normal behavior with an iPod / iPhone?