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I may be misreading you, but it sounds like you are connecting the IPod at the place where you would connect headphones. The actual connection is where you would actually dock the IPod. This also keeps the device charged - great system!
Not sure what year the OP's vehicle is - but my 2007 only has a 3.5mm jack inside the armrest. The USB port wasn't there until later model years.
If you're connecting a male to male 3.5mm cord, you just need to make sure the Aux input is selected on the stereo and that the volume on your iPod is at a reasonable level. I found that I have to pretty much have that volume at 80% or more on my iPod Touch 2G.