Everyone I know that has upgraded to iTunes 7 have experienced awful skipping and distortion effects during playback, especially while playing games. I found a fix that appears to have solved the problems I was experiencing. It turns out that it wasn’t iTunes, but it was QuickTime that was causing the problems, and reverting to an earlier version of a particular file can fix the distortion and skipping problems.

Here’s a link to the forum post:
http://www.neowin.net/forum/index.php?showtopic=497963

Download the files there and stick them in the QTSystem folder of your QuickTime install directory and you’ll be good to go!