No. You're not doing anything wrong. I have a grand caravan that does the same.
Seems that systems that have iPod connectivity always prefers the library in your iPhone that music apps.
It's annoying cause my car would play the same stupid song everything I connected the iPhone.
My solution was to remove all music from my iPhone library.
Now pandora works OK. Still can't fwd songs from the radio though. Not my caravan, not my wife's journey. But her old sonata with a eBay nav radio could. Lol.
