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Having Honda1 etc. playlists is optional, you should be able to play CD-8 and CD-9 without any other playlists in place.
I have an iPod Classic 160GB, with the latest iTunes and latest firmware, and it works fine 99% of the time.
On a couple of occasions (with an older, buggy firmware), the iPod stopped responding to the car controls. The display indicated the tracks were playing, but there was no sound. A quick iPod reset, and the problem went for a couple of days. I've not had the problem on the current firmware.
Another quirk it has is when playing CD-8, and leaving it for a few hours, it starts playing the songs alphabetically from the song playing when I switched off.
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