You could get a USB power supply and use the 12V power socket in the ashtray. But the advantage of the pure USB solution is that everything is hidden and you don't have to replug things in every time you use the car.
The USB disk would be a good solution if it worked - cheaper and more capacity. Except it has some quirkyness when searching for tracks. It seems to use the file name as the sorting criteria rather than the ID3 tags. So if you search for all albums by one artist, and that artist has multiple albums, you get all the #1 tracks followed by all the #2 tracks. On the iPod, it plays all the albums in the correct track order (and chronologically too - nice).
However, once the selected set of tracks is finished (e.g. one album) the USB disk continues with the next set of
files (e.g. the next album in alphabetical order if you name your folders correctly) whilst the iPod just replays the tracks from the start (i.e. repeats the album). Depends what you prefer, but I prefer the USB disk behaviour.
The iPod has the advantage of syncing seamlessly with iTunes (which is really useful for podcasts updates). You can sync with a USB drive/stick but it is not as straight forward on the PC.
But the USB drive/stick has a better sound quality as the digital
files are decoded in the PCM (or amps ?). The iPod outputs line level analogue signals which may even be re-digitised inside the PCM to perform signal processing. As a result, the USB drive/stick has a more defined treble and more solid soundstage. You can hear the difference when stationary, but not really when moving (the tyre roar overwhelms the difference easily). And if you turn on Bose/Surround then it messes so much with the music that there is no advantage even with the engine switched off (I turned off Surround and turned-on Linear within about 5 mins as they sounded so artificial).
But I'm not willing to buy USB disks at random until I find one that actually works with USB socket power alone. Anyone own a PC/electronic shop and can test out multiple brands of disk ?