TX1991Fan, No, the bluetooth is wireless. It absolutely works fine. You have to "pair" the iPhone with the car - both to use it as a phone, and also to use it as a bluetooth device. We have both her iPhone and mine paired with the car, we just select on the screen which one to use for the BT (bluetooth) mode at that time. You can also plug the phone in through the USB port to use the auxiliary mode - but who wants to play with wires. This way, she can just keep it in her purse.
Here's a video describing hooking up an iPhone both as a phone AND as a wireless audio player.
http://cnettv.cnet.com/how-pair-phone-2010-lexus-hs250h/9742-1_53-50076177.html