Since nobody else has chimed in, I thought I'd add a post - although I haven't had this problem happen to me. What I wanted to add in case it helps is that although my music is in a folder called 'Music' which is in another folder called 'Entertainment' all I did to get it working was to check the box to enable iTunes server and checked the box for Root - the DNS-321 did it automatically and found the music itself so I don't think you need to point it to that particular folder that you have your music in so I'd try checking Root and letting the DNS-321 do its thing for you.
That being said, I believe its an iTunes limitation but either way iTunes will only display the content in List view using the iTunes server function which drives me nuts. Although I keep my Music collection on the actual computers drive, I have about 350 movies and 92 TV seasons in iTunes currently so keeping those files on my laptop was obviously out of the question. I just added the files to iTunes in the traditional way by dragging them to the iTunes icon in the dock from the folder on the DNS-321 (or 'File' 'Add to library' obviously). This way I can display them any way I want and update all the meta-data under the 'Get Info' tab - iTunes doesn't care where the files are actually located once you've added them. I don't know if this helps as you may have a specific reason to want the iTunes server function to work, but although I have it enabled and have the dlink NAS showing up in my shared devices in the left tab of iTunes I never use it as you only have to add the files to iTunes once.
P.S. - if you go down this route, make sure you go into the 'Preferences' 'Advanced' tab and uncheck the box for 'Copy files to iTunes Media folder when adding to library' otherwise it will copy them from the DNS-321 and add them to the iTunes folder on your computers drive when you add files to iTunes. Good luck