Hi,
I don't have a VW so I cannot comment on the cable that was recommended. Maybe it would help, maybe it won't. If you can get one from a friendly dealer on a sale or return basis that would be worth trying first.
If that does not work, then the first thing is to check is whether the grounds are good. Is the Phatbox itself grounded or not; Is it only grounded through the cable to the headunit; Or does the ground never actually get through the cable (deliberately or otherwise); Or are their alternative ground points for the wiring that could be tried. There are many possibilities. It partly depends on how much you know technically, as to how successful you may be debugging this. But sometimes it can be better to bite teh bullet and try to find an alternative, such as the ground loop isolator that you mention. I use one in my Volvo with great success, since I could never completely get rid of the noise from the alternator, or the fuel injection, or the digital noise from the Phatbox. The isolator fixed all of them.
Many folks assume that isolators remove the noise by filtering, and so they assume that the audio is also filtered. This is not the case. The isolator is basically a pair of small transformers, which allow the audio signal to pass through, but the block the current that would otherwise be flowing along the ground wire bewteen the Phatbox and the head unit. Instead that current goes through the proper power supply connections. Now, if you do use an isolator, you will need to ensure that the Phatbox has a ground connection other than through the cable to the headunit, since that is the connection that you would be breaking.
Incidentally you should be able to pick up an isolator for a CD changer for around $15 to $20, so if you are handy with a soldering iron, this could be the way to go.
My Wiki page on how to put a VW Phatbox into a Volvo covers much of this - I recommend that you take a look.
http://wiki.phathack.com/VW_Phatbox_to_Volvo_Transplant_%28How_To%29Regards,
Les.
