Yes. Apple is not going to make a laptop that isn't compatible with iTunes. Just because it's 11" doesn't mean it can't do stuff, we went to the moon with a computer much less powerful than the MBA.
I am not to sure about OSX, but my Vaio TT which has the same cpu, but lower intel 4500hd gpu. It even runs 1080 youtube files hooked up via hdmi no problem at all.