The recent iTunes update has addressed a number of issues some people have had with iPods, playlist syncing, and the capability to remember passwords. While for most users the update should work without problems, some people have experienced issues with iTunes updates in the past and there is no guarantee that new problems will not occur.
Before updating, be sure to have a full backup of your iTunes library, including both songs and other library files. While iTunes should not touch the files themselves, if an error occurs when the library is being updated, you may lose information about the songs, or lose songs from the library itself. Keep in mind that iTunes will make a backup of the library and store it in the "Previous iTunes Libraries" folder; however, it is safest to use an alternate backup method before running any installer.
There are some things you can do to be sure your iTunes installation is healthy before updating. First, remove all but the used preference files that iTunes accesses. If you check your preferences folder (username/Library/Preferences/), you may see a few files named something like "com.apple.iTunes.plist.QYzeC0N" next to the used "com.apple.iTunes.plist" file. These files may be 0KB in size, but regardless of their size, they are not used so you can remove them. There may also be similar files in the "ByHost" directory in the preferences folder.
Beyond preferences, temporarily remove the items in the /username/Library/iTunes/ folder, including "iPod Software Updates" and especially "iTunes Plug-ins." If any plug-ins are not compatible with the iTunes update, you may experience odd behavior in the updated program. There is also a similar folder in the global library, so be sure to check in /Macintosh HD/Library/iTunes/iTunes Plug-ins/ and remove everything except for "Quartz Composer Visualizer.bundle."
There also may be files in the iTunes folder itself that could cause problems. If you go to the /username/Music/iTunes/ folder, remove all except the following items:
Album Artwork (folder)
iTunes Library Extras.itdb
iTunes Library Genius.itdb
iTunes Media (folder)
iTunes Music (folder)
iTunes Music Library.xml
Previous iTunes Libraries (folder)
For the extra files, do not throw them out, but instead move them to the desktop until you have iTunes running, and then move them back if you think they are needed. Usually, however, only the files in the list are needed.
Already have iTunes installed and are experiencing problems? Try checking the aforementioned locations and remove the suggested files. Then try iTunes again to see if it works. You can also remove the active iTunes preference files in both the Preferences and ByHost folders, and then relaunch iTunes. As a last resort, you can remove the iTunes library files (both it and the XML) as well as the other support files in the /Music/iTunes directory, and then reimport all of your music again to recreate the libraries. To reimport, once iTunes is open just drag your "iTunes Music" folder to the iTunes window. This is a last resort, and will remove all song ratings and play counts, and other meta data.