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Not sure about your first problem - I have been using my ipod in my 120i loan car for a couple of weeks now, and the sound is fine. I do find you notice the difference between older music that was originally recorded on analogue equipment and newer digitally recorded stuff, but that is not exclusive to ipod. And even the older stuff still sounds good on my ipod.
I would be interested to know about your second issue though. I had noticed that the ipod stays on while plugged into the car. While I severely doubt it would draw enough power to drain the car battery, I would like to know if it could do damage to the ipod.
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