I'm unconvinced. Navigating the UI via knobs seems much more distracting to me. I have to reach farther in my vehicle, but more importantly, I have to watch the screen anyway to make sure the knob ends up on the right control.
It really depends on what you are doing, but yes - if you need to look at the screen to do anything, you still fail safety. A knob is nicer than a touchscreen because you don't have to adjust to a moving vehicle to hit the right spot of the screen (for this same reason recent airplanes have buttons in addition to touchscreens).
Still, if you are very used to the UI, you can say the music app is one item down from the map, and the phone is two, so you can count presses. I was able to SMS people with a Nokia phone with a hand on the steering wheel and one on the phone (back when it was not forbidden).
Am I missing something?