It was a lot harder than I thought actually from the iPhone.
Had to disable MobileMe to stop it synching and removing permanently all my contacts, then just left the favourites and then transferred the phone book. The names were all back to front, so I tried to re-sort them on the iphone and do it again, but same result.
I saw a Youtube video of a guy doing it so easily from his iPhone, and he even had all the photos added to his contacts, but I dont know his trick, as I can't remember the video.
The Manual said that there is no way to edit contacts on the AVIC unit. So Primitive,