I have a tin ear, so anything I say should be taken with a grain of salt.
The PAC is going to give you two sets of RCA plugs to get a signal into your head unit. One set of plugs is selectable off of Preset A (the radio will show Sirius Channel 100) and the second set of plugs is off of Preset B (the radio will show Sirius Preset B).
As others have said here before, all you really need is a simple mini-stereo to RCA cable to plug from the headphone jack on the iPod into one of the inputs on the PAC.
I had it set up that way for about a week. The sound quality is good: far superior to an FM transmitter, like the iTrip; significantly better than an FM Transceiver; and nominally better than a casette adaper.
Taking it one step further, you can modify a Belkin docking cable (or similar) to connect to the bottom of the iPod and solder on two RCA connectors to get line level input into the PAC. Check iPodLounge, some guy posted detailed directions on how to do this, complete with photos, over there. I considered this, but wimped out and went the IceLink route.
I feel I can hear a qualitative difference between the signal coming out of the docking port over the signal coming out of the headphone jack. It may be all my imagination, but the signal separation seems more pronounced, the tweeters seem to be crisper, and the overall quality of the line level output vs. the headphone output seems better.
FWIW, your mileage may vary.