No reason why it shouldn't work - the Phase 3 headunit's just use a mini ISO plug as seen below (presumably your remote stalk has been changed as that also shares the same connector?) and is nice and easy to get accessories for.

I've bought one of these iPod kit's, just need a P3 stereo to fit it to after ripping out the aftermarket one in my car:

http://www.ebay.ie/itm/Peugeot-206-406-2002-CAR-iPOD-iPHONE-AUX-IN-INTERFACE-ADAPTOR-CTAPGIPOD010-3-/330757171719?pt=UK_MP3_Player_Accessories_Cables_Adapters&hash=item4d02a9ea07

In that case the one you linked to will work perfectly, it's the same basic idea... it just tricks the system into thinking you have a 6 disc changer attached - hence the iPod kit i've got allows for 'disc's 2-6' to be selected playlists whilst 'disc 1' hands control to the iPod.

The only thing i'm not sure of with the SD card / memory stick version is how easy it will be to switch songs if there are a lot on there... you will be able to do simple forward and back from the stereo and/or stalk but if you've got hunderds of songs on a card it may be more difficult to find particular stuff.

Hence the iPod comes in handy for larger music collections as you can use that to control, I'm going to either fit a port in the glovebox for my iPhone, or pick up a cheap 2nd hand nano and shove it in the front ashtray, which although more money, will be more convenient.

Either way, it's going to work fine & should be very easy to fit, just velcro the box somewhere behind the dash (on a rallye, the top glovebox would be ideal) run the wires and re-assemble.

No radio control with that one I take it.