Less rare than you might think. One of the Left for Dead games on the XBox (forget which and which) wouldn't display any LAN network connectivity unless a memory card was present.

No memory card inserted? No UI difference between "No Ethernet plugged into XBox" and "XBox connected correctly to LAN".

Insert memory card? Network magically appears.

(I may have almost taken a sledgehammer to the hardware after I stumbling across this issue while setting up a PAX game room. And no, the memory card is not used for LAN play.)

Yeah, that's how I read it as well. The likely explanation in my mind is that the process of making sure the phone is synced properly includes playing the first iTunes song, but since that fails as there is no song, the whole "sync for audio playback" is registering as failing.