I don't think there is anything wrong with my installation, I do not have any audio quality issues, just the issue that I loose control of the iicelink control ...
I updated my ipod last sunday to 1.1 and it appears that it is more stable now than before, as it took until today (Wed) lunch time for the issue to re-occur. I was skipping 5-6 songs on a playlist using the > button on the radio, waiting at least 5 sec between pushing the button ... and voila, lost control again ... but, this time after turning the radio off for 20 sec or so the icelink controls came back ... previously this happened on a daily basis ...
so maybe things are improving ...