I helped a friend look at this - the iPod connectivity options are pretty limited and functionality is weak, whether its the official VW kit or an aftermarket addon. None of them will give you full navigation through the stereo, so you're limited to 6 playlists and (AFAIK) no tracknames etc.
I'd either get a Brodit active mount and use an aux in and navigation on the ipod itself, or replace the stereo with a decent aftermarket unit. I did this with my friend the other weekend, its a big job as the dash has to come apart but the end result looks pretty good