No you dont need an FM modulator....

#1 Find another installer

#2 What you want to do is REPLACE the monsoon amp.
You're not going to need it. I spoke to someone who goes by the name of Jettaboy (http://www.digitaljetta.com/). He replaced the monsoon amp and took a look inside.....nothing more then what appears to be a 4 channel amp (did he take pics, no....grrrr). If you're amp is 4*50 or less, you should be good to go.

#3 find another installer

#4 Believe it or not, the monsoon speakers are nice. You should get a nice sound out of them. It won't be audiophile quality, but who can afford to spend $2000 + on equipment
(no wisecracks from the peanut gallery). You will notice a BIG difference in sound (for the better).

#5 Understand one thing, the monsoon system has the speakers layed out in the car a certain way to set up the soundstage (very noticeable in the beetle). Use that 4 channel EQ.

I'll try to help you out as much as possible, I'm getting my new amp put in on Monday (Woo Hoo), for right now I pray for warm days (for some strange reason, if it is above 72 F outside and the sun warms up the car a bit, the amp turns on....I don't want to know....).