I have iPhone 3g (not the 3gs) and I don't even pause playback. I just select iPod as source and once the music starts, I go to the Pandora icon and fire it up. It slowly turns down the iPod music and once Pandora loads, I am running.
Now, when I plug in my iPhone, it always complains that "this does not work with this unit, turn on airplane mode" Just be sure to answer "NO" Airplane mode will prevent Pandora from working, and text, and phone and anything not iPod -- but you knew that.
To my knowledge, I am using the cable that came with the unit.