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The "please quit iTunes" thing happened to me with Xcode 4.0 on 10.6 as well. Pretty ridiculous.
The Xcode installation asks you to close iTunes because of iTuneshelper and how iTunes will sync devices (including development devices) when they're plugged in. It makes sense that Xcode asks you to quit itunes (and kills ituneshelper too) to update files. It isn't ridiculous.
Having a dev system that's so fragile that iTunes needs to killed when installing Xcode is insane. It's the request of a lazy programmer that's not willing to put in the work of understanding the real requirements or working around the problems, and would be unacceptable in a consumer-facing application. I don't want to say it's OK in the developer tools, but probably not as bad.