I personally have both (although hardly use either because with a DAB radio there is plenty of choice!). The only benefit I could notice over using SD card is that its less likely to be stolen than an iPod and it frees up space in the little box where the iPod connector is if you don't need the iPod. Other than that, sound quality, or accessing music, playlists etc there is no difference.
Personally, if I had neither to start with, I'd buy an SD card just because they're cheaper than an iPod if it was only going to be used for music in the car.