The procedure was simple. Firstly, you should make sure there is no
phone in the Audi fitted cradle if one present. The Audi system
becomes discoverable for 30 seconds when the ignition is turned on
(without engine running). From the iPhone's settings, choose 'General
> Bluetooth'. The car's handsfree system should appear as 'Handsfree'
under 'Devices' - click to pair. Enter 1234 when asked for a pass
code. The connection will be made.

The best things happens after that - the entire address book on the
iPhone is synced to the car's phone book. This dynamically updates
each time the iPhone is connected. I am not sure if this is a two way
sync.

Once paired, you can assign voice tags to phone numbers and activate
it by the multifunction steering wheel, make and receive calls.

My next task is to see if the iPhone can operate as an iPod when
connected to the Audi fitted iPod connector. Watch this space!