New Aux Input Splitter I found...

[HHummer]

Since Brandon has not yet replied, I'll let you know that the PAC AAI-GM24 just plugs in between the factory plugs (2) and the radio. Plenty of length to work with. The only other connection necessary on the H2 installation are the two stereo-in pair. The radio rotates through the band button and adds aux1 and aux2 on the face in addition to the existing am and fm. The button on the steering wheel cycles through the radio, cd, and aux indications. There is a 12v supply if you need to power some other option, but remains unused for this application.

I have noticed the same thing on the mp3 sound compared to a cd in the radio. I believe that you will notice an improvement when you eliminate the FM modulator, but my mp3's do not sound quite as dynamic as the cd. If you are using AAC at the highest level, I don't believe that you can improve, other than the direct connection. I am going to rip a cd in that format and make a direct comparison, just to compare apples to apples.