A lot of people (rightly) focus on the compression of the music source, but don't forget there is another consideration - the digital to analog convertor in the iPod.
It will be interesting to see how the iPod actually connects through this BMW kit. If it is through the headphone jack, you will still have a loss of quality from the digital to analog conversion.
The best setup would be using the USB port of the iPod to connect into the BMW kit. That way you pipe a pure digital signal into the car. I'm not holding my breath though...