Ipods aren't capable of providing audio over the USB connection.
Sorry mate but that's wrong. My friends retro-fitted alpine radio plays his ipod and my iphone via the bottom dock connector with nothing in the headphone socket. and as it's plugged via the dock connector you can pick songs etc via the radio.
I have a shiney new Golf TDI (2.0 110bhp) and that has an ipod dock connector thing but it doesn't seem to handle music to well as sometimes it sounds like its mono not stereo... I'd assume that the
Ibiza's would be like this and maybe play via the dock connector alone but just in mono..? but gives the cool radio controls (not so great when the phone rings, but it's clever enough to pause the song play the ring tone and then continue with the track

)
The golf's nice but i want my beeza!! (golf is a hire car I'm using for work at the moment (driving to/from Plymouth! :S) It's pretty nice, actually really nice but i just don't like the look from the outside!
-Cyph