I did exactly this for my 1st Gen iPod. There are a bunch of issues you'll run into. The first is that you not only have to remove the ash tray completely but then you will still need to trim the center console a bit. Then you have to fabricate a tray to hold the iPod. Having done this you loose the cover. The lid hinges to the ashtray not the console and those hinges are thick and inset on the lid. You loose about 1/2" to a full inch of real estate if you want to keep the lid hinges.
My workaround was to cut the hinges off the lid and just set it on top of the fabricated tray. For the lighter socket I just moved it to my glove box panel.
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