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Good news got the phone and I'm able to reproduce the issue... Seems like the AAC 64kbps are the ones with the most noticeable issues.
Some cars send BT events such as PLAY and STOP when the car stereo pairs to a BT device.  You might get away with disabling the "Media controls" under Settings->"User experience".
The bars represent the current internet connection speed. If you are always between 4-5 bars you should be good when streaming, but if you hit 3 bars or lower you might start getting in the buffering state.
Thanks for your feedback... Yes, you are correct and it's definitely on our plans to improve this particular area. Thanks for your feedback!
Great feedback! Thanks so much for your support! :)
No, it won't help since once the stream is disconnected the buffers are consumed completely. Once consumed than the reconnect request is started. We are going to test better reconnection methods soon.
I just bought it... let's hope first I can reproduce it and second and more importantly resolve this bug...

I'm definitely going to continue trying to figure out how to resolve this issue... I think I"ll have to go buy one of these phone to get this working...   What is the exact model of the phone you are using?

Next update I'm allowing users to test the beta internal streaming engine for AAC content... YOu should try that once it's released :)


Update 05/23/11:

XiiaLive v2.1.9 has option to use internal streaming engine... Check it out under Settings->Adv Users