Oh dear, it sounds to me like the XCarLink may have developed a fault. Have you tried cleaning/remaking all the connections?
The XCarLink takes raw digital out of the iPod and converts it into analogue. So a faint output would suggest it is responsible. Can you confirm that no other sources present the same fault, ie the radio or CD slot? And taken with the intermittency of the steering wheel control capability, I think that also points to the XCarLink.
I should imagine your unit is out of warranty, but have you tried contacting XCarLink for advice?