I have no problem playing music from a simple flash drive - just select USB as an audio source but, while the car will happily pair with my Android phone via Bluetooth it gives the Connect Retry error if I try to connect to the phone via USB. The car's system does appear to be very selective. Honda will, no doubt, say that it is our devices are incompatible. Indeed, I'm starting to wonder whether we of a certain age who expect to be in control of our cars are incompatible with the Mk 3.
The best fix for your music problem is to dump it all on a flash drive which you plug into the socket in the cubbyhole between the front seats and forget that it's there. You can set the audio system to random play, etc. Alternatively take the car + ipod to the dealer - page 300 of the book says that if you cannot clear the error message then contact the dealer. If enough dealers complain about the problems then Honda might take notice.