I just bought a new car stereo and it has a USB port and is iPhone compatible. When I plug my iPhone 4 in it works fine and plays the music and shows track info and all that good stuff on the stereo BUT on my iPhone it locks me out of any iPod controls. When I goto iPod app it just says accessory connected and doesn't give me any controls.

Is there something I can do to bypass this, so I can control the music from both phone and stereo?!?

Yes there is a tweak for this, it's called something like NoAccessorySplash

I ran into this same problem using my Panasonic car stereo after updating my phone. I was goofing around in the car stereo's settings and found something that said controller so I went through the settings and one was ipod. I selected it and can once again scroll my albums from the phone. No crack involved. Check your stereo settings and make sure there isn't an option to re-enable your ipod/phone.

lol i need to get more involved with the forums these days... so far i haven't found any settings for that and sure enough the tweak isn't working on iOS 5 and i can't contact the Developer either so I'm stuck figuring it out on my own -_-