Just thought I'd put out an update on my problem. It has been solved. I spoke to a tech at Apple at 1-800-275-2279. She had me try a few things that didn't help. Her last suggestion was to uninstall QuickTime and iTunes then reload. She sent me the uninstall instructions at
http://www.info.apple.com/kbnum/n93698 which I followed. When speaking to her I told her I was afraid to do this because I saw other people on the discussion board who tried this and lost all of their music. She assured me that that wouldn't happen. I did the uninstall then the install. (Just a note here, I also read on the message board that someone said that to cure this problem you should do the install then open up QuickTime before opening iTunes. I did this also but don't really know if it made a difference.
Bottom line is I uninstalled QuickTime and itunes per the instructions at the site shown above. I then installed both again from
www.apple.com/itunes/download. After the download I ran the install and unchecked the box to let itunes start after the install. I then opened Quicktime then closed it. I then opened iTunes and all of my music was there and I didn't get the anoying "iTunes is not set as the default player" and the error after trying to set it. The problem described in my first posting of copying CD's is also gone. So beleive it or not, EVERYTHING is working just like it should. Some of the above steps might not be required but I would follow them step by step because I know they worked for me.