Some pretty basic advice needed please...

Recently bought a 2008 A3 1.8T FSI with the Concert 2 and Ipod connection / lead in glove box, and after reading the manual it says it's compatible with older Ipods so i bought a cheap Nano 2nd Gen but the damn thing doesn't work. It does charge though which is strange so it's obviously connected to power somewhere.

The only thing i can think of (being rubbish with auto electronics) is that it has a Bury hands-free kit fitted which ideally i want to keep as it looks like it's been professionally installed and is quite an expensive bit of kit by the looks of it. So i can only think of a few things:-

1. The lead is faulty.
2. The head unit is faulty.
3. The hands-free kit has been fitted thus disabling the Ipod connection (perhaps uses the same connection in the back of the head unit?).

Oh and it also has an Aux input in the centre console which works ok.

Any advice would be much appreciated.