I ended up getting wifi syncing working, but had to ditch both iTunes and Firmeware 2.x.x
Basically you use WinAmp as the library and a couple of other pluggins and apps get it all going.
Follow this site, (if interested) its the steps I used as well, and then made some scripts to refine it...
Where I End And You Begin: ml_ipod + winamp + iphone sync = true
It is working, but I hope Apple supports wifi iTunes in future firmwares then I will ditch this method.