For the trash issue, pull some of the things out until you can empty it and then place the stuff you pulled back in one at a time. Hopefully this is one of the things that will be resolved in the next release.
As for iTunes, is that the very latest version (2.0.4 I believe)???
The error message you gave comes up as "File is corrupt or unusale, or not AIFF or AIFF-C" I don't know how much music you have in iTunes, but you might have some bad files there.
I'd suggest pulling the preference file for iTunes and try it again. If it still doesn't work, then remove the playlist files as well. The music is stored on your hard drive, not within iTunes, so you can always recreate the playlists later.