Alot of the howto depends on the phone. Some phones have a pinout on the connector or cradle that is a "ring" line, and gives a logic signal when a call comes in. Some of these are also activated anytime the phone"s headset speaker is active. Others might be modified to do this when the speaker is activated, at least if you are comfortable digging around in the guts of your cell. An yet others are completely useless in this particular application. Unfortunately, I am not a cell phone hacker, so I have no clue as to which has what; I only know generally how they work. But once yuo get that little logic signal thing figured out, it shouldn't be too hard to write a little app that will lower the mp3 volume when the signal is present. It could be one of the inputs on a serial interface that has all the miniswitches for doors and windows and stuff wired into it too, with a little TTL guy in there to keep from frying stuff. Once again, I am a generalist and have no idea how to actually do it exactly, but what good is a hobby if you don't get to learn exciting new things? I actually want to do kinda the same kinda thing in my system, except I would rather it mixes the cell audio in with the mp3 audio while attenuating the frequencies normally used in human speech, kinda like the vocal removal or karaoke feature on some players.
The other way to do it that I can think of is the way they did it on your dad's car: analog style. You could cook up an L-pad in a circuit that would turn on only when the speaker was working or something. This would be a little hard to do unless you are good with PCB's and a soldering iron, but it could be done. I know some handsfree kits for certain phones have this feature built in, but it mutes the entire output via the head unit's mute wire (some have them anyway)instead of lowering the volume. It would mean even more wires and yet another black box to stick someplace though, so I would recommend the first method.
Anyways, I hope I was at least semi-helpful, but as far as I know, there is not a real easy way to do this.