I think it depends on the model of iPod. I tried an old iPod I used successfully in my old Mk6 Golf GT and got the message "Sorry this USB device is not supported". I'm not sure if more recent iPods will work. Not sure I would fork out the money for a new iPod touch, when I don't know whether it'll work.
So far I've just used my iPhone, connected via USB or Bluetooth, but I will want a bigger capacity media device so will explore using a USB memory stick.