While I don't have an Ipod, I do have a RIO Karma that I am currently using with an FM transmitter. Here are the drawbacks as i see them:
1. Snap, Crackle, and Pop. Depending on your FM transmitter, the number of available stations you have available to you (some only have 4 freq choices, some 8) may prevent you from finding a nice clean and clear frequency to broadcast on.

2. Constantly searching for a good station. This isn't so much a problem day to day, because you find one that works for your area and stick with it. However, road trips it can be a real hassle, especially in Metro Areas. The DC/PHilly/NYC/Boston corridor is awful, unless you have a large number of frequencies to choose from. I seem to always be fighting NPR or country stations.

They do have the advantage of being transportable to any car, and you don't have to crack open the dash and try to mount something permanently.

Just an FYI for those considering the FM tranmitter route. I've heard that modulators that actually plug into the antenna cable between the real antenna and the radio do a much better job of overcoming these problems. However, that's more of a permanent install.


cheers,
-garth.