Uggh that really kills innovation and our web app that turns an audience & their devices into a huge stereo system all via a URL.

Why force an audience to download your app when you can just say, "Hey everybody go to speakerblast.com/party and we'll all become a rocking stereo system with our devices."

Our fingers are still crossed this is a bug!

It very well could be. For example, they might have discovered a resource leak in Safari (based purely on observation, Safari seems to have more than a couple) and unintentionally blocked these features' method of operation in the process of fixing it.

I've never worked on such a major project or been part of such a large company so I doubt I know what I'm talking about, but wouldn't testing include this part of operation?

Only if this feature is considered critical to Apple's interests.

Major companies don't test that every detail of the product works exactly as it did last version. (Well, except Microsoft pre-Ballmer.) They test that those features that have been deemed strategically important - the ones that will cause substantial portions of the userbase to leave if they're broken, or major PR disasters - continue working. Apple probably doesn't care if Grooveshark and other HTML5 music players stop working entirely. They may not break it intentionally, but if it happens to break accidentally, fixing it is low on the priority list.