Earlier models didn't play mp3, while later versions did.. you cannot upgrade software, but have to change the whole PCM which is $$$.

As suggested, get either Dension, or mObridge iPod/Bluetooth kit, probably the best mod I've ever done. The difference between mObridge and Dension is that mObridge has BOTH bluetooth/iPod together, but ONLY plays off iPod/iPhones... while Dension has separate kits for Bluetooth and iPod, BUT you can just use a SD card and play songs off that easily!