have a similar FM modulator item under accessories.
They do two models a wired and un wired.
Wired takes a 12v source and physically connects into the aerial lead of the radio. I've recently used one of these to put playstation2 sound through the car stereo and it works well. Its not quite DVD quality sound but is ok. There is a slight hiss but I think a ground loop isolator may sort this out.
The unwired I understand takes 2 AAA batts and doesn't have a physical connection to the aerial lead. Which sounds similar to what you have above.
Prices for both are in the region of £30 and can be bought direct or through their ebay shop.
As for legalities I'm not sure - as the wired item doesn't actually "broadcast" the FM signal by feeding it directly into the aerial lead it could be classed as legal. The wirefree one in my opinion is illegal, as I understand it is illegal to broadcast any FM signal of any power without the necessary license or it being a nominated public frequency eg PMR446. However realistically with such a small amount of output power I wouldn't foresee a problem.
Confirmation from Radiocommunications Agency