Cool!
AFAIK for the new iPod/iPhone video integration feature, you will need the cradle that goes into the center console compartment and it will only work with cars that have been manufactured since 09/2010.
The A/V inputs you used to hooked up your iPod has been in the rear seat entertainment system since the introduction of the F01/F02 series. Speed of selecting different videos only depend on the iPods speed of changing it as the entertainment system in the car has nothing to do with that, but selecting a new video on the iPod would most definitely be faster then selecting a new DVD from the changer as the changer takes it's sweet time to perform a disc change...
I never hooked any external device up to the rear entertainment system, but I think I should give the iPod touches my kids use a try next time we go on a longer trip... and let each one of them decide what they want to watch...
I assume you use the remote control to select the A/V input?
Can you select different inputs for the left and right screens via the remote?