What are your intentions of sharing your music with him? So that he can copy/burn etc or is it just for listening. The integrated iTunes server in the DNS-321 is simply for streaming around your network to users with iTunes.
If he needs to be able to burn then he may be better off with Importing the network volume as you mentioned. If this is simply for listening to each others music, basically you will follow this process.
1. Copy your music to a directory on the DNS-321
2. Login to the web UI of the DNS-321
3. Go to advanced > Itunes Server
4. Enable the itunes server, uncheck root.
5. Click browse and select the main folder you copied all your music into.
6. Click the refresh button at the top
7. Save your settings.
Once you have done all that, he should see a device show up in iTunes labeled, "DLINK-XXXXXX", where XXXXXX is equal to the last 6 digits of the devices MAC Address (printed on the label on the bottom). Once he clicks that he should be able to see the music in your shared folder.