I was in the same position mate, a 'cd changer' is what you need. It plugs direct into the back of your radio. I bought one for £50 off amazon, works a treat.
No reason they won't, as the software is same as 4S which I've got. Some older versions of iPhone may not as they'd be missing bits of hardware.
As for B&M try it first and only update if it doesn't work. To update just google B&M and download the latest software to a USB stick (you might need to unzip first, just follow the instructions).
Then put memory stick into the USB slot and it'll start updating, with voice prompts telling you what's happening.
If you want to have music on the USB stick afterwards, I'd recommend deleting the B&M software off it, as when I'deft mine on it kept trying to update again every time I started the car.
I was in the same position mate, a 'cd changer' is what you need. It plugs direct into the back of your radio. I bought one for £50 off amazon, works a treat.