iTunes has it's own built-in sharing for people on a local network. You can listen to the tunes others share on the same network (like in a home or a dorm) through their iTunes, but as you found, you can't import or save those tunes.

Play around with the sharing tab in iTunes Preferences, and also look at your LW's preferences for iTunes to see more.

by the way, iPhoto in OS X 10.4 also has that sharing feature.