I have a Duo with 2x2TB discs and also have my iTunes Library on the NAS and find my speed really good. Some of my files are Lossless and there is no problem with them. Perhaps there is a problem in how you have set things up.
This is how I did mine.
1. I had my iTunes library on my iMac local drive (C:/user/music/itunes/etc 2. I transferred my iTunes library to my Duo from within iTunes. It's best not to just drag and drop. 3. I use the iTunes server on my Duo to access the library from all computers on my network. 4. I also use the SqueezeCentre server to stream to some Squeezebox Boom's. I can synchronise these Boom's or they can both play different tracks from my library without any problem.
Having my iTunes library on my Duo allows me to access the library from any computer or squeezebox without my iMac running.
If you are suffering loss of speed then perhaps you need to start from scratch.
Do you keep your iTunes library organised and have you ticked the check box to copy all music to the iTunes library. This is in the iTunes preferences (Advanced section)
I did what Singularity did - made an iTunes share, and then within iTunes, pointed it to be my Library. Once that was done, I went into the Library options and did a "Consolidate Library", which copied all of the media to the new share.
Note that this will leave the library index file on your computer, and if you're disconnected from your NAS for some reason (such as on a laptop, but away from home), you can still download files - iTunes will store them locally, and you just need to re-Consolidate when you're connected again.
