For future reference, here is a solution:
Setting the audio session category to kAudioSessionCategory_AmbientSound (to play iPod music at the same time) somehow disables MP3 hardware acceleration. Setting the audio category to kAudioSessionCategory_SoloAmbientSound fixes this, but does not allow iPod playback. Now I set the audio session category depending on whether background music is turned on or off to allow iPod to play simultaneously.
source share