yeah, iphones are notorious for working one minute and then after updating being unable to connect.
Have you tried the latest update 4.3.* somthing i think?
I made a typo in my earlier post - if it was jailbroken, you can remove a file which then allows you to connect to most 3rd Accessories without problems.
When you mentioned it said "not optimised for iphone" - it could be possible that the headunit is only ipod compatiable. I heard of people fooling the iphone and the 3rd party Accessories by unlocking the phone, loading up ipod from the springboard and then plugging the cable in.
Edit...you may want to check one of the ihpone forums out for some advice so from their end. Good one is sinfuliphoneforum (google search)