VW car bluetooth - Android 2.3.6 (Nexus S) phonebook display
For some reason this just worked itself out.  One day I did "update phonebook" in the bluetooth menu, and then everyone showed up.  Before that, I thought I was going to have to remove my wife, brother, mom, etc, from favorites to get them to show up in the car's bluetooth menu.

So, if this happens to you, try "update phonebook" in your VW/Audi bluetooth menu.