Apple just released iOS 4.2 today and I immediately updated my 3GS. All is back to normal now regarding the USB connection and playback. Charging is still not supported but as long as I can play music I could care less about charging at this point.
Robsieb:
Hope it worked for you.
For me - it works perfectly. I just drove around for about an hour - I think the problem is fixed. The menu on the 2011 touchscreen/Nav unit is quick and responsive and no stalling or drops or pops. Move around the menu and screens very easily and quickly - so am very happy.
Hope it works for you too.