I havent tried USB yet, but yes using a USB would produce the same great sound quality. I think one of the advantages of an ipod would be music organization. I'm not sure exactly how music would be organized on a USB drive, but organizing music on iTunes is really easy, and however you put things on iTunes is how it will transfer over to the ipod. When you're like me with 5000+ songs, organizing music manually is just not a feasible option.
The ipod also let's you make playlists, which I use almost exclusively. I don't think you could make a playlist on a USB, though I could be wrong about that.
I would also imagine, as some have hinted at, that the USB drive takes a while to load up music. This is because the car has to read and process the entire drive. With an ipod, the ipod itself does all the processing and the infotainment system only has to view text information. On my setup the music starts playing after about 20 seconds, and it takes maybe a minute before you can access the ipod menu.
At the end of the day, it's down to personal preference, but I that given how much a used ipod is, the benefits far outweigh the small cost.
Thanks to the both of you for those tips! I'm still getting used to not having a CD player, and I'm getting sick of the few tunes I have on my cell phone... (Yes, I'm old, so what? lol)
Question: I still like listening to whole albums, so if I store mp3s in separate folders on the USB drive (by album), will the player recognize the files, and even play them in order by track?
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Haven't tried USB, but you can definitely play by album on an ipod.