I purchased the $39 Griffin iTrip to use for a recent trip for my portable DVD player as well as the Droid. It works pretty well.
More recently, I re-discovered that the Motorola T505 bluetooth speakerphone, which I already owned (in my wife's car, but she doesn't use it), has a built-in FM transmitter. I like using this better than the Griffin since there are no wires/plugs to connect. The Droid connects to it via Bluetooth as soon as the T505 is powered up. Then simply hit the FM button on the back of the T505, it announces the proper FM station and voila, you are listening to your Droid.
With the T505, I've actually streamed Slacker music wirelessly to the Droid over 3G, then via BlueTooth wirelessly to the speakerphone, then wirelessly via FM to the car stereo. It's pretty friggin' cool, actually to have 3 different wireless technologies working at the same time to deliver live Internet Radio to your car stereo.