Thank you for taking time to help me with this!
1. So if the NAV sound comes through the speakers, it will mute the DVD audio if also elected to be played through the speakers? (Dealer said: "no prob, will only mute front"; one guy from customer support said "will play fine through separately installed additional set of speakers"; another lady from support: "the continuous uninterrupted audio for rear monitor DVD source could only be achieved through the wireless headphones"). At the end of the day I don't even care if both audio "overlap" each other as long as the DVD sound keeps on going. But the option with the built-in speakers (for monitor) is a great one. Didn't think of that. Wonder if it sounds all right (not too quiet)?
2. Sorry, I didn't really get the fade part. My previous car had an option to fade down (Left/right; front/rear) sound, but not the one I currently own. If that's something I would get with my new Pioneer HU, would you mind telling me the setting you're using to keep your rear seat passengers happy?
If you are playing DVD audio through the car's speakers, you can choose in the preferences panel whether or not you want the audio to be muted when there is a guidance prompt. I'm under the impression all speakers are muted equally, not just the front ones, but I could be wrong. In your case, just choose not to have the volume muted and the guidance prompts will simply play over the DVD audio. It may be difficult to hear, but DVD audio will not be interrupted. For this function, dual zone audio is not even necessary.
If you want to listen to a second source, then you need the dual zone function. For example, kids want to watch a movie but I want to listen to the radio. Rear monitors are connected to the HU's AV out so a movie with sound is playing in the back (but not through the car speakers) and I can listen to the radio in the front through the car speakers. I fade the audio all the way to the front so that the radio is playing only over the front speakers. As long as your car's front and rear speakers are on separate leads, you should be able to control this through the AVIC. I have 4 headrest monitors in the back, each with built in speakers and they are just loud enough at maximum volume for each kid to hear. They watch a movie and I listen to the radio. When I approach a turn, the radio can be muted for the guidance prompt while the AV out signal to the rear monitors is not affected.
Hope this helps.