Okay, here ya go, deggie. I appreciate the fact that you conducted the independent experiment. As for the problem, I wish this was a concoction of my imagination.
My AEX hangs on the wall in my living room; it has a single connection to an amplifier, nothing more. The device is running 7.4.2 firmware, attaches to my network via a cisco Aironet 1242 802.11g radio, and obtains an IP address from the DHCP server on my cisco PIX 501 firewall. The AEX is set to "join a wireless network," uses a 128-bit WEP key, has AirTunes enabled with a friendly name of "Living Room" with no password. All three devices in question (AEX, iTunes PC, and iPad) are on a flat Layer2 network - though the PC is connected through a Polycom SoundPoint IP phone. There are no range issues between the AP and AEX.
When the iPad kills the connection between iTunes and the AEX, iTunes simply stops playing, and the device name becomes grayed.
Take a look:
http://lynk.us/images/AirPlayFailure.png