Hello and welcome to the forum.
You should be able to pair the phone to Blue&Me so that it works as a hands free phone, but you won't be able to play music stored on the phone (or anything else for that matter apart from calls) through the speakers.
The easiest and cheapest solution is to copy the music onto a memory stick in .mp3 format; you'll then be able to use the steering wheel controls to select it. Another cheap and easy to understand option is to add an FM transmitter to the phone; you'll then be able to set the existing radio to an unused channel and play whatever you wish from your phone through it. You'd have to use the phone to select the audio, which rules out making any changes manually whilst driving as this would contravene the mobile phone regulations (but you could use whatever voice commands your phone supports).
You can certainly fit another head unit and that will have whatever functionality is built into your chosen head unit. It will likely be difficult or impossible to use any of the car's existing systems with the new head unit, so you'll lose the Blue&Me hands free function and the steering wheel buttons probably won't work.
Note that the Blue&Me units in the early cars ('60 plate and before) have less functionality and connectivity than the later models, and can't run the latest blue&Me software - this is a hardware limitation of the Blue&Me installation in your car.
