I have the exact same issues (factory fit in console).
To get some reliability I have to always set the iPhone playing whatever I want before I plug it in (paused of course), and wait 5-10 seconds after start up before turning on the RCD-510. The downside is that when I browse on the touch screen it goes to /Songs instead of where it is currently playing from. It seems to only know where to go to if you start playing from the RCD-510 unit, rather than start it from the iPhone before plugging in. Ugh.
As for the slight pause when changing tracks, that just sucks and I don't know how to avoid it.
Surely they can fix this in firmware? I am going to complain to the dealer at my first service, although I am convinced that will be entirely pointless.
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