I am running iTunes 10.5 on Windows 7 SP1. I was getting the same -3259 error and found out that I didn't have the proper share setting enabled on my home network. To resolve the problem, I went into Control Panel > System Security > Windows Firewall > Allow Programs communicate through windows firewall. I'm not sure exactly which one it was, but when I granted access to windows remote management, volume management, and windows media player sharing service, the error immediately went away and is playing nicely with all my other iProducts.
Hope this helps someone else.