What you need to get is an aux input adapter made by PAC Audio. It's the AAI-GM24 and you can see it
here about half way down the page. It will let you keep both your CD changer and your XM (if you have that), and it provides a direct connection for your iPod so the sound is great. I'm getting mine hooked up as soon the the adapter comes in. I'm going to have it professionally installed and they're going to run the charger directly to the back of one of my cigaretter lighters instead of having the wires hanging out all over the place. I'll post pics when I'm done but I'm planning on using the cradle that came with my ipod and just velcroing it to the flat area right below the climate controls. If you position it just right between the fan control and the vent control, all it blocks is one of the cigarette lighters. It's the best way I could come up with to hook up my ipod without it looking and sounding like $hit.
If you do decide to get the PAC AAI-GM24, make sure you get the newest version (version 2.4.12). That version has been updated to work with 2006 vehicles and I have confirmed with PAC that it will work in the H3.