Re: replacing stereo?
I think the kit you saw was a Jensen-based, not Kenwood based, but
that's not really important.
Playing CDs at all is a factory *option*, but I honestly don't know if
they play CDR/CDRW; someone else can surely answer that question.
There is no trivial way to get a line-in capability with the Prius stereo;
the minimum requires identifying the unit as a Toyota device with a little
communication on the IEbus at every start-up, and also sening keep-alive
notices, none of which is trivial.
You can install another head-unit and take over the speaker connections.
This would render the existing radio (and all its controls including the
volume knob) non-functional, and is also incompatible with the factory
NAV should you have that. If you take this path you'll have all of the
features offered by the other head unit, which you'll have to control
on its own front panel (or IR remote if provided). If done right, you'll
still have the dash clock, but some have had stereo stores disable
their clock when installing an alternative head unit.
Another option is to use an RF modulator and tune signals through the
Prius radio, or as you mentioned, the fake cassette adapter approach.
Good luck, and get the Prius; you won't regret it.