Testuser, your best guess was correct -- it was indeed the file:
com.apple.internetconfig.plist. To confirm this I logged in as another admin user and launched the new iTunes. I then tried to set iTunes as the default Internet media player for this user and it worked perfectly. I figured that it was not then a system wide problem but was confined to a problem file in my original user library. I logged back in to my original user accoutn and tried removing the iTunes prefs files first to no avail. I then tried moving the com.apple.internetconfig.plist out of the Preferences folder and iTunes was then able to make itself the default Internet music app with no problem. The only downside is that I had to re-enter all my Internet preference including login information contained in cookies -- including, of course, this site.
