Q: Using ipad/iphone with airportexpress to play music

Sure, you can do it!

While your iPad and/or iPhone are connected to your WiFi, you will find the same AirPlay icon you use from your computer in Music on your iPhone and iPad.  Change your setting in AirPlay just as you would from your computer.

Oh, there's one caveat ... you need a new enough AirPort Express to do this.  I believe the original model cannot do it.

Yes, you not only need to use it as a wifi device, you also should set it up as an AirPlay device using AirPort Utility.

You can simply set it to "Extend a wireless network".  It will do nothing more than that, and serve to host your AirPlay system.  All this can be done in AirPort Utility.

Regarding the WEP key, assuming you do just extend the network, you'll just have to supply the WEP key initially (one time) when setting it up using AirPort Utility.  If you want a different network with its own WEP key, I think you could do that.  But I assume you would rather not.

Is it better yet? If not, try cycling power on it.

First, here's the troubleshooter ...

AirPort + Time Capsule Support

I'll follow up with more shortly.

I'm assuming from your post you're on a Windows computer.

Are you using the latest AirPort Utility (5.6.1)?  Here's the download if not:

AirPort Utility 5.6.1 for Windows

AirPort Utility should indicate what the problem is that's causing your AirPort Express to flash.

Another thought: you might try resetting the AirPort Express.  On the current model, the reset button requires a paper clip-like device to push the button located over the audio jack: