UPDATE: As noted above, the new update is now on the AppStore, so you shouldn't run into any problems. Still feel free to drop me a line with feedback though :-)
Yep. Disabling the music is the key. Unfortunately you can't just turn the volume down (as it's still playing, just silently) but if you start one of your own tracks in the iPod, then it will leave that running, (ignoring our soundtrack) and the play will be smooth :-)
If anyone has problems with this, just email me at email@example.com and I'll find a way to help them.
Not only is the v1.1 update now live but the game is going on a limited time sale of $0.99!