Like Jizzo, I discovered this awkward work-around too. I have two Airport Expresses connected to two separate sets of speakers in different rooms. One also relays internet data, since it is connected to my DirecTV. The other, however, is a stand-alone unit.
I decided to "play" with the stand-alone one. I reset it to factory default settings, unplugged it, put the speaker jack in and then replugged it into the wall. In the factory default settings Airplay works out of the box. The device ceased to be part of my home network because, by default, it creates its own.
I have to switch networks on my iphone 4s from the home network to the new Airport Express network. It sees the airplay device and its attached speakers. I can then sling my music to those speakers with no problems at all. Yay! 🙂 Plays endlessly.
Now the downside. Since the two airport expresses are on different networks, iTunes no longer sees the second AX and its separate set of speakers. 😟 So while I gained the ability to use airplay from my iPhone 4S, I lost the ability to use that set of speakers with the home network thru iTunes. Grrrrrrrrrrr! (The AX also blinks amber all the time because it's trying to tell me there is no internet connected. I haven't yet figured out how to stop that annoyance.)
So, for those of you who just want to use Airplay with iPhone 4S, it can be done. It just can't be done with the AX as part of a home network.
For what it's worth.
There must be something about the network protocols that is causing the problem. When my second AX was part of the home network, using airplay to it would crash the home network in 10 seconds. As a separate stand-alone network, the AX plays nice with my 4S and it airplays music flawlessly.