That 65 C/W is for a SOCKET without no pcb heatsinking copper. If soldered, with appropriate copper layout, it goes down to 45°C/W, or less, Junction to Ambient.
As for your heatsinks, they are ~20°C/W, but you forgot to add the Junction to Case rating of 2°C/W. So 25 Ambient + 20 Heatsink + 2 Junction to Case = 47°C/W * 1.2W = 56.4°C Junction Temperature.
Key points, Look at notes 8 - 11 on page 7 of the pdf, and consider the board layout (you have tons of empty board spacing no need to have everything so close together).
Page 19 also has good information:
HEAT SINK/THERMAL CONSIDERATIONS
In many cases, no heat sink is required to keep the LM2575 junction temperature within the allowed operating range. For each application, to determine whether or not a heat sink will be required, the following must be identified:
1. Maximum ambient temperature (in the application).
2. Maximum regulator power dissipation (in application).
3. Maximum allowed junction temperature (150°C for the LM1575 or 125°C for the LM2575). For a safe, conservative design, a temperature approximately 15°C cooler than the maximum temperature should be selected.
4. LM2575 package thermal resistances θJA and θJC.
But then you realize, The LM2575 is characterized for operation over the virtual junction temperature range of -40°C to 125°C. At 1.2W (I'm rounding up a bit) and worst case 65°C/W Junction to Ambient, that's still only 78°C Junction Temperature. Almost 50°C below it's maximum operating temperature. Worst case, socket, no proper pcb copper sizing, no heatsink, and you're still good to go. ** Rearrange the traces, and throw on your heatsink, and you're golden. You might need to move the L1/L2 inductors or the heatsink won't attach right. Ideally, you would have the Ground Pin 3 connected directly to the large ground plane.**
Just bare in mind, I hope you have selected the right layout for the 2575 you are getting, as it has multiple versions.
Finally, TI has the Switchers made Simple software here: http://www.ti.com/ww/en/simple_switcher_dc_dc_converters/index.html?DCMP=simple_switcher&HQS=switcher that can help (Though the LM2575 is not included). Also, this article http://store.curiousinventor.com/blog/pcb-as-a-heat-sink-calculating-trace-width-for-given-current can help give you some ideas.
The LM7805 is a linear dropout regulator. These are classic, robust devices that do what they do pretty well. But their intended function is to modify small voltages a little bit to maintain relatively constant supplies for things that do not use much power, like a lot of modern low voltage logic and regulation ICs. Even the supplies that do use these regulators have things in place to kind of ball-park the voltage before the 7805 rounds off the top.
All voltage dropped from one end of a 7805 to the other is blown away as waste heat across some resistance. Its not a big deal for a small voltage drop for a bias supply, but you would literally be venting about half of your input power for no reason. A fairly common chopper buck circuit or half bridge switching supply could do this with efficiencies in excess of 90%. You could even make a reasonable one out of a 555 timer, a transistor, some resistors, three capacitors and a zener diode, if you just feel like you have to play with something.
Best Answer
The automotive environment is electrically very noisy, with potentially large spikes on the 12 V power bus (especially during engine start). This can be mitigated through the use of large filtering capacitors, maybe an inductor inline on the supply, and perhaps a transorb or other protection device. I don't know enough about power supply filtering to tell you exactly what to do, but you might be able to Google "automotive power supply filter" or similar. Note that the regulator may require input and output bypass capacitors, too.
Then there's the issue of iPad fast charging. I'm not sure how it decides it can draw more current for charging than what is normally allowed by the USB spec. I think there are resistors of a specific value between certain pins on the supply side. If you don't care about fast charging (which I've heard the iPhone 4 also uses), then you can ignore this.
You don't want to put an LED inline in order to see that power is being drawn. An LED has a maximum forward current above which its lifespan is dramatically shortened. This forward voltage is typically 5 - 25 mA, far less than the 1000 mA your regulator is capable of delivering (and far less than the 500 mA the iPod will likely draw). An alternative would be to set up a high-side current sense resistor (inline on the +5V side) and high-side current sense amplifier, use the output of that to drive a MOSFET or other transistor to turn on an LED. There are probably other ways to do that, but that's what comes to mind.
It really is easier to buy an off-the-shelf USB charger with a suitable input voltage, and cut off the supply connector to wire it in (with a fuse!) to your car supply. As another commenter mentions later, it may still lack appropriate filtering. You should be able to buy an automotive power filter to put inline with the USB charger. Then plug the Cables to Go panel mount into the charger.