Complete Instructions
I had the same thing, I was like, "Huh?!" when it said how to make it work. So here are instructions for Mac & PC:
Mac OS X Leopard 10.5.4:
0.5: Make Sure You Are Connected To Your HOME WiFi, not EGDE or the neighbor's WiFi & that you can access the 'net on your iPod Touch/iPhone
0.9: Go to System Preferences, choose 'Security', hit the 'Firewall' tab, make sure the 'Set access for specific services & applications' optin is checked, and make sure iTunes is in that list. If not, hit the '+' icon, find iTunes from the list that appears, and hit ok. Close System Preferences.
1: DISCONNECT The iPod/iPhone
2: Open iTunes
3: Open Remote.app on iPod Touch/iPhone
4: Take not of the password, eg 3994 might be what it shows. DON'T exit the app!
5: Go to iTunes, and under the "Devices" list where your iPod Touch/iPhone usually appears when connected, and click the 'iPod Remote' icon.
6: Enter the password into the screen that appears.
7: Press OK, and it should say "Your remote will now work" or similar.
8: Enjoy controlling your iTunes library from your iPod Touch/iPhone!
PC (Windows XP/Vista):
0.4: Make Sure You Are Connected To Your HOME WiFi, not EGDE or the neighbor's WiFi & that you can access the 'net on your iPod Touch/iPhone
0.7: Check that your firewall allows iTunes to access the internet. I you can download songs through iTunes, then it's fine.
0.9: Make sure Bonjour (
http://www.apple.com/downloads/macosx/apple/windows/bonjourforwindows.html) is installed & active!! Very important!
1: DISCONNECT The iPod/iPhone
2: Open iTunes
3: Open Remote.app on iPod Touch/iPhone
4: Take not of the password, eg 3994 might be what it shows. DON'T exit the app!
5: Go to iTunes, and under the "Devices" list where your iPod Touch/iPhone usually appears when connected, and click the 'iPod Remote' icon.
6: Enter the password into the screen that appears.
7: Press OK, and it should say "Your remote will now work" or similar.
8: Enjoy controlling your iTunes library from your iPod Touch/iPhone!
If these instructions don't work please let me know, I'm happy to help. I can help you with all 3 versions (Leopard, XP & Vista)
I hope this clears it up for you all.
SuperMacMan