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I have no problem with the iPod setup but have also been to a wedding reception with no music or dancing. No one really missed it and everyone still had a great time, so if renting a sound system and finding a non-wedding guest to hit the play button is an issue you are perfectly fine forgoing it altogether.
I think I read someone else on here (or another website) that made up a playlist for their wedding to hit play and they did something to the Ipod that switched up the order of everything and put it in alphabetical order instead of the order the couple had wished it to be in. I think they were able to fix it, but if you go this route make sure you have backups in case technology doesn't play nice!