The reason that the HUs may not be able to show the track information may be similar to that of the iPod/MP3 player in Jags.
In Jags the iPod is used as little more than a storage device (the iPod doesn't actually decode the MP3s itself). The HUs in Jags were, just as I guess in Audis, never intended to be connected to anything other than a multi-changer, so a box (which actually decodes the MP3/WMA files) sits between your iPod and the HU. This box tricks the HU into thinking its a multi-changer and just sends audio to the HU.
As the HU's were never designed to recieve DATA other than a few basic things (like CD ERRORs and Track Length) from a Multichanger there is no physical way for the HU to recieve track names (and such). Of course the decoding/interface box CAN be designed to send out MP3 information... Its just it would have no-where to send it to! So, HUs without specific iPod/MP3 support will NEVER, EVER be able to display MP3 file information... even if Audi wanted to design it 'better'... its just not physically possible. As far as the HU is concerned it thinks its connected to a Multichanger, the playlists are CD discs and the files are tracks.
Think of it as two colleagues in an office who don't get on... They'll work together but they don't really talk much!
Incidentally, you may also notice once you reach 'track' 99 and the next track starts to play the display rolls back to 'track' 1. This is because a CD is physically limited to 99 tracks and as such most HU's are only programmed to display tracks 1-99 when dealing with CD's... as it thinks the iPod interface is a multichanger, and its dealing with CD's, the HU track display will still only go up to 99 before the decoding box fools the HU into thinking its going back to the start of the 'CD' and the display wraps back round to 1.
Hope thats cleared up why the 'interface' is so poor but its really doing the absolute best it can! For 2007 (I presume thats the year of your car) you really would expect better (from the HUs) but who knows, Audi may have a warehouse crammed with hundreds and hundreds of thousands of HUs without intergrated iPod/MP3 support that they are just no going to throw away when there is a 'work-around' available!
One area where Audi could have made the interface box better would be, like in Jags, to make it switched so you can still use a real multichanger, as well as the iPod, if you so wish... oh, and the Jag interface can read MP3 files from MP3 players (that have a full sized USB connection on board) and USB memory sticks... oh, and it also has an AUX in connection.
I'm not preaching about Jaqs here (especially not on an Audi forum) its just that, for their iPod/MP3 interface at least, the white coated boffins working for Jaq actually used their noggins... which is quite shocking!!