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Thanks for all the posts.
I am using the standard ipod cable and have software version 4.2.1
I tried a few things today and things have improved. I removed my sunglasses and synthetic case for the centre armrest, laid the ipod as falt as possible (to minimise movement), swapped the ipod cable and ensured that it was properly connected.
Listened to Depeche Mode with no noticeable sound quality issues. However, swapped to Robert Plant and Alison Krauss and I still think I can hear some interference. Will try some more tomorrow.
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