The adaptor I have works like that, too: You can get it to display track info and such AND controll it with the radio controlls (and the steering wheel buttons) IF you've pre-set a series of playlists.
There is however, another setting on the unit where you use all the controlls of the iPod itself, browsing and selecting tracks just as if you were using an iTrip or similar device. Not as cool as seeing the iPod menu on the Nav... but easier then creating a ton of playlists (or one gigantic one! I have close to 14,000 songs!) and scrolling though them one by one.
The difference is the sound quality. The FM transmitteds really suck in comparison to playing directly through the head unit.
Maybe the newer unit made for MINI will have more functionality... I guess we'll have to wait and see for sure.