I've tried a couple of iPods - both using the same data set from the same iTunes account. (These are both regular old-fashioned iPods).
Unit: F700BT
IPOD 1: 5th Gen iPod
AVIC Display Quality: Jagged
IPOD 2: 2nd Gen iPod Nano
AVIC Display Quality: More Jagged (than IPOD 1)
I'm not sure how others are getting such a clear display. Cover Flow in iTunes displays crystal clear for the artwork graphics as well as the iPod displays themselves, but the display on AVIC is all jagged, can't quite figure this one out yet.