Installing iTunes or other desktop software on your server isn't supported. In the case of iTunes, which includes the ability to stream to your Apple TV appliance, you
will need to have it running in a desktop session, I'm afraid. iTunes streaming only works if iTunes is running, and iTunes isn't designed to run as a service.
As for the file conflict warning, if a file is held open for more than 24 hours, Drive Extender generates a warning because it's unable to duplicate the open file. iTunes keeps it's library file open as long as iTunes is running, thus your error.
I'm not on the WHS team, I just post a lot. :)