Update (and a cautionary tale):
So far the trick I posted yesterday of going nuclear on itunes still allows itunes to see the devices over wifi, but now that I had a bit of time to try syncing over wifi, I have to suggest that it was a feature that was rushed and the error correction/handling is not enough or non existent.... Which in my case took my ipod offline for 5 hours today as I had to essentially do a "factory reset".
My library consists of 11,000 songs on my ipod touch 4th gen 64gb, along with several dozen podcasts. Last night I played a few of the newly downloaded podcasts on my PC, downloaded a few more, deleted a few, and this time I went to do a wireless sync. It got stuck on step 1 of 6 on the PC and the ipod was stuck on step 3 of 4 for what seemed like 10 minutes. I tried to abort but the only thing that seemed to snap it out of whatever mode it was in was to reboot the ipod. The sync did eventually finish last night after a bit of prodding but this morning I was horrified when I couldn't play a single song from the ipod, from the play list, from an artist or from the song list itself.
I had to bring my laptop in to work today, and while it was locked away in a cabinet, wipe all music, podcasts and movies from the ipod --- OVER THE CABLE THIS TIME --- then proceed to put them all back on (5 hours later).... So far, the ipod is behaving itself, but given the trouble wifi sync is giving me and how easily it could pooch the music library database on the ipod, I'll stay old school for now.
I may brave the wifi sync in the future if apple decides to think outside the box and put in a useful feature such as "fix errors / rebuild the ipod's music database", that essentially would do the equivalent of a factory reset without doing the full wipe/re-copy of the 50gig of media that are not corrupted. I also had previous genius updates (in ios 4 with the previous itunes version) fail due to "not enough memory" error, and after restarts, it would work the second time, but the thumbnail artwork would show genius playlists instead of the album cover on some albums. Such a "fix/rebuild" feature that would also unconditionally rebuild artwork on the device would have saved me similar grief there as well...