My wife recently changed jobs, and though she will no longer have to do a bumper-to-bumper commute, when she does drive, it will be for longer distances and times. After a week she basically ordered me to get her an FM transmitter for her iPod because she was sick of stupid radio hosts.
We already own one FM transmitter, an AirPlay from XtremeMac. It's a decent unit but not spectacular. Its pros are that it's small, tunes to any station, and doesn't need batteries. However sound quality is mediocre and it doesn't work with post-4G iPods. Since my wife's iPod is a 1G nano, we needed to find her another solution.
So I did some research, primarily over at iLounge and quickly found that very few FM transmitters get good grades from their review section. One of the few exceptions was the Kensington Digital FM transmitter, which iLounge gave a grade of A-.
And I'm here to say that though it's expensive, this little unit is simply awesome. Audio quality is just as good as if not better than the radio, it charges your iPod, and it works with all iPods with a dock connector (which basically means anything after the very first generation iPod, with the exception of the iPod Shuffle). Since Apple is not likely to abandon its proprietary dock system anytime soon, it means that I won't have to buy another FM transmitter when I buy another iPod. It plugs into your car's 12-volt accessory outlet, tunes to any station and has three pre-sets.
Yes, it's expensive (US$80), but in this case, you definitely get what you pay for. Highly recommended.