I've just done this mod.
Follow this thread and buy the MK3 tuner 65120439437. You don't need the antenna splitter with a MK3 tuner. You only get 3 months free. http://forum.e46fanatics.com/showthread.php?t=914129
You will need the mounting kit 84110390240.
The tuner just bolts on. You will need to pull the headunit out and detach the connector that is taped to the harness with SDARS written on it. Swap it in to the radio connector for the audio and tape back the one you removed.
For the iPod, the BMW one should be avoided. For a start it won't fit the iPhone 5 and future iPhones, and second it does not support text, you get six playlists matched to the 6 CD buttons and that's it.
Look at a Dension or a DICE Mediabridge and plug it in to the CD changer sockets under the storage bin in the front armrest.