This is a very cool feature. Here are the steps to really make the two work together.
Install Palm deskptop and the newest Hotsync Manager (on your T2 CD)
Then, go get the latest iSync download from Apple.
The get the iSync Palm Conduit from Apple (on the iSync page at Apple)
Now you have all of the software you need.
Setup:
1. Make the machines talk and setup a trusted connection (sounds like you did this)
2. Goto to the Hotsync application on your T2. You will see a list of Hotsync option, and you will want to choose "custom". Then follow the gui and have your Mac listed as the connection device. (note I dont have my Tungsten to give you exact details, but it is pretty simple)
Now you can Bluetooth hotsync to Palm Desktop.
3. Install the iSync conduits
4. Now go into the Hotsync manager in Palm Desktop (Palm application menu)
5. Change the conduit for addresses and dates to point to iSync and they will now sync to iCal and address book.
Check the web for more detailed instructions, but this is the process.