Hi all - I know this thread is a few months old, but wanted to post here because I was experiencing these exact same symptoms this past weekend and happened to come across this thread after searching.
I have the Z120bt and installed it myself in my 2003 GMC Envoy about 2 months ago. Everything has been working perfectly fine, until last Friday night when all of a sudden, the MUTE / ATT indicator icon in the top right corner began going on and off randomly and muting the sound. This is the same thing that was happening to STLBIGA (confirmed by watching his YouTube video link above). It continued like this for 20 minutes or so, until I stopped to get gas and turned the car off. When I turned the car back on, it was working normally again. Then after another 30 minutes or so of driving, as soon as I plugged my iPhone in to the iPod connector, it immediately started to flash ATT again, on and off until it eventually just stayed stuck on mute.
I can only think of two things that could be causing this:
(a.) overheating - which could be a possibility given the other examples in this thread and also because the car heater had been blowing for while. This was the first time I've used heat in the car since installing the Z120bt.
(b.) Generic iPod cable - since I've only faced this problem twice, and both times it happened while using the iPod, I've become suspect that maybe this could have something to do with it. I've read the warnings and sticky notes on this forum about using the generic cables and wonder if this could be the cause. (I also noticed in STLBIGA's video that he was using the iPod interface when he was filming the issue.)
Just wanted to share my story here so you guys know it's happening to more people out there.