IP radio = standard car option?

Sorry to disappoint, but I don't see Internet radio as being a standard feature in US cars anytime soon. However, that doesn't mean that the use of Internet radio in the car won't become widespread. It will just take a different path.

Legal requirements for handsfree operation of phones while driving is pushing adoption of Bluetooth in the car. Conversion kits will give way to standard option Bluetooth, likely with A2DP (e.g. stereo audio) support. This means that instead of native devices, the route for Internet radio into the car is a docked cellphone.

The choice of Bluetooth connecting docked phones is also driven by the economics of alternative solutions. To have widespread adoption, you need a standard. Yes, MPEG-4 HE AAC over RTP is the standard for streaming Internet radio to vast millions of mobile phones. However, the means of getting IP connectivity to the car are varied, causing the need to purchase some kind of custom device for each carrier. If you are going to spend money on a new connection device, why not just dock the phone in the car? I know there is growing interest in 3G to WiFi routers out there which will make your car a roaming hotspot using a 3G dongle or PCMCIA card, but that still doesn't solve the last 3 feet problem of connecting to the car speakers.

A final driver for the Bluetooth A2DP route is that the 3G carriers in the USA don't have a consumer friendly business model for non-voice device connections. In other regions (e.g. Japan), device makers can release a data-only device which uses the wireless data network. I have also heard of these kind of devices in the EU, using GSM for remote monitoring applications. However, the dynamics of the US market don't seem to go that way. WiMax won't cut it, even if it gets deployed. WiMax only works in metros and people want a radio that works at least nationwide - you would need 3G and 2.5G support in the radio. My Sprint or AT&T music phone will that criteria just fine and my flat rate data plan on those phones is $15/month.

Bottom line, unless the carriers make a joint push with device makers for a data-only IP radio and a standards body approves the profile (3GPP in cooperation with NAB would be a good choice), docked phones using A2DP are the most likely near to mid-term scenario. The only real downside with this solution is that the SBC codec used by default on A2DP phones has quality issues. For IP radio, though, the benefit of getting the stream you want will definitely outweigh this quality limitation.