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I use my iPhone via Bluetooth to play music off the iTunes app (radio and downloads), I also keep an iPod in the space above the glovebox to play music via usb without InControl.
Unfortunately you can't play music off your iPhone via BT with the iPod plugged into the usb socket (have to unplug usb cable first but that's a whole different story). CarPlay can't get here fast enough!!
Yes, a hardwired iPhone/iPod will disable Bluetooth audio streaming, so you can't have both going at the same time I'm afraid. When you disconnect the plugged device, the BT audio streaming portion is restored. The Bluetooth hands-free phone profile keeps working regardless of course, it's just the audio / music streaming portion that gets interrupted when you plug an iDevice into the USB port.