Well i managed to get it all installed this morning. I bought a headphone extension, and wired it through the car and then into the XM box.
Now when on a normal XM station, and i plug in the ipod, the level of the XM signal goes down, and my ipod signal is heard. I dont know if thats because of the increased resistance of another cable or what.
Doesnt work on the Radio ID channel like originally thought. I dont really know why it mutes it on that channel. But it works, and I now have an Ipod Direct Input in my car.