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The solution that provides the best sound would be to connect the iPod to the stereo via the stereo's auxiliary input. Unfortunately a large majority of car stereos don't have an auxiliary input jack, so you will probably be forced to buy an input adapter that adds RCA inputs. iPod2Car is an example of a dedicated solution using this method. There's also the iceLink Plus, and Monster has a product called the iCruze shipping in 12/04.
If that's too much bother then you are left with a cassette adapter, or one of the various FM transmitters: the irock; SoundFeeder; and Griffin's iTrip. While opinions differ on which transmitter is best, the iTrip seems to be the most popular due to its ability to transmit on any frequency between 87.7 - 107.9 MHz. Update: There's also the new Podfreq that also transmits on any frequency. It's bigger than the iTrip but works better (editor's opinion). And now (8/04) Belkin has an updated TuneCast II which also transmits on any frequency.
If you are looking for a place to put the iPod in the car, check out the Podpod.
Lastly, Crutchfield has posted an article about playing the iPod through a car stereo.