Basically what you're doing is inserting analog audio onto the output of the changer.

1) Do you have any noises (engine running or not)?

2) Do you hear the iPod over the CD playing?

3) A plug-and-play version of this is the Soundgate DockBMWv2. It switches an aux source in place of the changer. I tried one in a 2005 X5 and it was noisy and unacceptable to me (for sound quality). I expect you'd probably have some noises too?