Aha! Found a workaround.
Using Contact2Sim off the market, I've transferred all my contacts to the SIM card. The car then loads these up fine.
The free version works fine, but I bought the full version which allows me to change the names on the SIM card.
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I have the same problem: Cyanogen 7.1 2006 VW Passat with Premium car kit. Two things happen when I try to look at the phone book. The first time, it just sits there and the car display says "Loading phonebook. 0 entries". It never changes off this (I left it for about 20 minutes today). If I back o...