I've not had any bother with mine with the latest o/s.
I use an iTrip fm transmitter and even thought it displays the pop up to say it's not an approved apple device it works fine.

Does your fm transmitter plug into the headfone jack or the bottom multiplug like mine. (where you also connect the power cord) If it's the multiplug at the bottom, could the fm transmitter have damaged or shorted any of the contacts?
just a thought..