Just bought a 2012 Prius 3. Ipod music cuts in and out intermittently. Sometimes it will go 30-45 minutes without cutting out, other times it will happen much more frequently. At first Toyota did not want to admit there was a problem and made me come in a number of times to look at it. I tried different cables and ipods. They finally admitted that many people have complained about this issue and that they're working on trying to fix it.
I have the same setup as you and get something similar. I use my iPad(3) in the car and if I hook it up to the USB port to enable an internet connection with Entunes, my Podcast audio will skip on/off every second making it unlistenable. However, I can leave it in and just use it for internet connectivity then switch my Audio Source to Bluetooth and all audio on the iPad plays flawlessly. No improvement with this when going from entunes version 1.8.4 to 2.1.0. If you're not seeing IHeartRadio in your Apps section, you are < version 2.1.0 Send in electronic customer service from the Toyota website and they'll send you a USB drive with the latest entunes version. Alternatively you can get it installed from your dealer.
FWIW, I've been using my iPod Touch every day, over USB, and so far, its running flawlessly. None of the Entune stuff is enabled, though I do have a cheap bluetooth phone hooked up for voice.
