I have 10.3.9 too. Things went south about 1 month ago, precisely when they were offering the upgrade to iTunes 8.x and I don't know why, but it started when the "do you want to up-grade to 8.?" panel went away.

I am never logged in to Mac except when I am asking for Album Artwork. Plus, I frequnetly use the i-button than says, "Would you like to CONSOLIDATE your files?" (Not sure what it does but re-write the library, like rebuilding a desktop file.)

Now, for the work around. You can evidently still do 8 to 10 songs at a time from one list and drop them onto another. Big bulky sets like 30 or 300 songs won't work.
e'mail me and I'll 'splain more tricks.