After talking with DICE and GROM techs, it sounds like I am going to have to wire any sort of adpater directly into my head unit, and even then, the results may be kind of iffy.
I plugged my ipod into the aux in port, fiddled with the DSP settings, and was adequately pleased with the resulting sound quality. I pulled the aux jack out of the back of the console (what a stupid location BMW), re-located it under the storage bin, and ran a long 3.5 cable back under the cupholder to the aux jack. Now all I see is whatever length of cable I pull out from under the cupholder down by the carpeting. I only use my X3 for short local trips, so I am more than happy letting my ipod randomly shuffle through songs. I may run some sort of power line to it as well, but its probably not necessary if I remember to take my ipod in once a week to charge it. I am using a nano, so it just sits on the passenger seat and can be easily tucked under the seat when I exit the vehicle.
Thank goodness my X3 came with bluetooth. I would be super annoyed if I had to go back to using some crappy handsfree unit cliped to my visor.
I have to say, the sound system/ ipod interface/ bluetooth in my 09 MDX is vastly superior to the one in my X3 and it includes XM radio. I hooked my ipod to the factory Acura connection right after I bought the vehicle, and have not touched it since. Why the BMW has such a half-baked system is beyond me.