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It wouldnt be a itunes problem i dont think,it all depends on the cds that are being used,in some spindles i buy usually get a few bum cd's that wont burn
Just for kicks, try burning a data CD. That should tell you whether it's the iTunes software, or burner/disc related. I don't think you need extra software to burn a data CD from XP, but I can't tell you how to do it off the top of my head.
I would try downloading the latest updates to whatever software you are using for burning. I find that that usually fixes any "coaster making" problems.
No, it is the type of files you are putting on the CD. Any files on your computer can be burned to a CD (provided they fit), but the disc can only be read by computers (not your home stereo).
This site seems to have pretty good instructions http://kb.iu.edu/data/akvi.html and if I'm remembering correctly, XP makes it pretty easy. Doing this eliminates the iTunes software from the equation; if the problem still exists then you know that it's either the burner, the discs, or Windows (i.e. the driver for the burner).