What is the model / manufacturer of your computer (or motherboard if it's a custom built machine)?
Error 1 is ERROR INVALIDFUNCTION which seems odd, but you have the kitchen sink of Upper / Lower Filters there.
We're going to do something a little quick and dirty, just as an experiment.
On the start menu, click on "run". in the space it provides enter "regedit" without the quotes. This will open the registry editor.
Find the heading HKEY LOCALMACHINE. Click on it.
Find the heading SYSTEM inside it. Click on it.
Find the heading CurrentControlSet. Click
Find the heading Control. Click
Find the heading Class. Click
Find the heading that begins {4D36E965- Click
Go up to the Registry menu and select "Export Registry File... command. Make sure the "Selected Branch" radio button is checked and save that off somewhere that you can find it.
Then delete the LowerFilters key and select the UpperFilters key, right click and select "modify". Edit that key so that it looks like this:
0000 47 00 45 00 41 00 52 00 G . E . A . R .
0008 41 00 73 00 70 00 69 00 A . s . p . i .
0010 57 00 44 00 4D 00 00 00 W . D . M . . .
0018 00 00 . .
Reboot and see iTunes behaves differently.
To get the system back to its previous state. Run Regedit again and use the Registry menu -> Import Registry File... command and select the file that you saved off in the first section. Reboot.
What I'm trying to do here is see if the problems you are having are because of a conflict between iTunes and other CD software that you have installed by temporarily eliminating the other software.
I believe you have the latest firmware for that drive.