I think my solution with the HTC Touch Pro is a whole lot easier. It is pretty much supported out of the box with only a $20 cable.
I just have my phone inside the side console refrigerator (I never use the fridge). Everything is pretty much hidden from view. I can pull out a Logitech DiNovo Mini keyboard to interface with it. About 10X better than the iPhone.
The problem with the iPhone (I have a 3G model) is that it doesn't have a front end or one you can get from the app store. Playing video is a bit of a hassle. I have my iPhone in my car as well and you can't really play videos by playlists. If you have 50 music videos, you have to exit out of the current one to play the next one. I don't have this problem with the regular IPOD. I use a Ipod Classic 80 just to play videos in my car.
Also, the Iphone doesn't support third party HID devices. You can't use a bluetooth keyboard or touchscreen HID from the LCD.
Phones are getting there. I use my HTC Touch pretty much over the standard Nav I already have.
Don't discount PNDs. You can buy a Mio and hack it pretty much; install a new front end, add multiple GPS apps - Garmin XT, Tom Tom, IGuidance, IGo, Oncourse,etc... All you need is a SD card and the proper boot executable. if there was a PND with Video Out and GPS built in, I would totally do that.