Here's what's going on: A number of stereo units from Pioneer, JVC and others are giving a "device incompatible" message when connected to an iPhone running iOS 4. Note that the 3G and 3GS phones in question worked fine with these stereos when they were on iOS 3.1.3. Of course, the iPhone 4 only runs iOS 4, but since the older phones are also affected it seems likely that this is a software issue, not a hardware one.
Others aren't getting the incompatibility message, but are seeing weird behavior. For example, everything works fine until a call comes in and then finishes. The song that was playing at the time starts over from the beginning, instead of picking up where it left off. Others report that the iPod app will play music for about 10 seconds and then go silent, even though it says music is still playing.
The issue is spread across manufacturers, so it's reasonable to point the finger at iOS 4 (unless all these stereo makers missed the same fine print in the iPhone compatibility specifications). If you've had the same trouble -- or better yet, found a fix -- let us know. Here's hoping a future update takes care of the issue.