Have the same issue from time to time on my previous bike (2011 RUSE) and now my current 2012 CUSE7. Several others have also reported this problem previously. Don't know if it is the iPod or the harness or the radio unit but something is not quite ready for primetime for sure.
I posted this solution previously. It does work and you can do it easily while riding without taking your hands off the handlebars. And no, you don't have to cross yourself, spit over your shoulder, keep one eye closed or do any other weird things, lol.

Using the 'mode sel' switch on the right handlebar scroll through the inputs until you get to XM so the iPod will be next in line. Press 'mode sel' once again to select iPod as your input source. Quickly (not instantaneously but without much delay) press the 'mode sel' switch up a couple times then down a couple times (can also go down first, then up, does not matter).
This has always gotten my the iPod to play for me. Beats having to stop and unplug it or power it down, etc.
