I'm sorry to hear this. I'm not sure why crossfade isn't working right for you. (As far as gapless playback goes--you can't set that--it's built into iTunes.) I took a few extra steps before my crossfade starting working right again. Maybe you need to do these things too to unstick iTunes. If you're game, try this:
1. Turn crossfade off
2. Close and reopen iTunes. Play at least two songs in Party shuffle--do they play correctly?
3. Go to the bottom of the party shuffle screen and change the number setting in "Display most recently played songs"--mine was set at 5, I changed it to O. You can try this, or if it's at 0 change it to 5. Make sure the screen changes--the previously played song titles should either disappear or appear depending upon the number you chose. Play at least 2 songs in party shuffle again. If they play correctly, turn crossfade back on and exit iTunes.
4. Reopen itunes and see if the songs play correctly now that crossfade is turned back on. If they do, you can reset your "display most recently played songs" setting back to the number you prefer.
I hope this works!