Hi Bugbyte,
I've been down a similar path too recently. I didn't want to jailbreak, but rather just use normal ipod, and also be able to control it remotely.
However, this is not possible using the ipod video cable, because it terminates the serial lines (which are needed to have control via buttons, etc).
Inside the video cable, there is a chip. It does authentication/handshake (there is some encryption).
The trick (I think) is to have a serial proxy-type functionality, which can be used to pass messages from the ipod to the authentication chip and vice-versa, but also to break this and allow you to 'inject' some messages when needed. These could come from a microcontroller. I made some progress like that, but have currently put video on hold (more interested in remote control currently).
Anyway, there is some documentation at
http://360.yahoo.com/shabaz_yousaf
Any assistance would be appreciated.