Hi,
I have a Toyota Echo with this MP3 cd radio feature as well.
It means that you can burn mp3s songs to a cd and listen to them in the cd player. It won't play .wav files but your computer can convert them to mp3s via a wave editor, just save the file as an mp3. I'm not sure how or if you could hook up your ipod but it may have a connection there, but get your Toyota Dealership to demonstrate this when you buy your car there.
Trust this information helps you!
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