option 1 sounds like it has potential, but not if they're limited to 128MB... why not just get an MP3 CD player (which can hold 700MB per disc). you can even get a matching CD changer that is MP3 compatible -- 6 or 12 discs with 700MB each.

options 2 also has potential, as long as you don't mind holding your ipod while driving and navigating through it to find songs, etc.

i like option 3, but as you said you need an IPOD (no dell dj or whatever you have)... but it is the most complete option (control it through the deck, direct audio connection, charges it while you play, etc.).

the speakers are driven by an external amplifier so you should probably use the PRE-OUTS when you hook up your deck, not the speaker level outputs.