Once, you've plugged your IPod/MP3 player into the Aux in, you need to select the AV channel on the TV unit. (Cycle through the channels until you find AV). That should do it.

I've got my MP3 player connected this way; sound quality is shite though...

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Then: 318i E36 - Metallic Grey, BBS, Sebring, H&R, Alpine/Soundstream.
Then: M Coupe E36/8 - Estoril Blue, BBS, De-Cat+Titanium XForce, AC Bits, Alpine/HK/Soundstream...
Now: 323i E46 - Titanium Silver, BBS, Sebring, Hartge Lip, PSS9, AC Bits, Alpine/Soundstream.
Now: X5 4.4i E53 - Titanium Silver, stock... for now.