I had this problem while helping a friend upgrade to iLife04. Basically the iLife DVD/CD got upset that there was a newer iTunes installed than was on the DVD/CD. We got thru the install by first doing a soft boot & proceeding. (See Apple KnowledgeBase for details.) However, then iTunes wouldn't run right. We trashed not only the iTunes application, but any iTunes file in the HD>Library>Preferences and HD>Library>Preferences folders. (Be sure to leave the actual music data files alone & in place.) Then we ran Software Update, which put a nice new copy of iTunes onto the computer.

I have upgraded my own system to iLife05. First I saved a copy of all iLife04 applications to another folder, renaming each with 04 in their names. Then I repaired permissions & made a full bootable clone copy of my HD to an external drive. Then, & only then, did I run the iLife05 update. iPhoto05 will want to upgrade (reformat) every Photo Library to the 05 format, so that's another reason you want a full backup clone on a separate drive. After the upgrades, repair permissions, and make sure you do not backup to your external HD until you have run all iLife programs with your data & know for sure that all is OK. It's best to have more than one backup set & alternate them once a week or so, whatever period of time allows you to exercise the current state of affairs yet not let your older backup set get so old it's useless in case you need to restore. I have an external firewire HD that is exactly twice the capacity of my Powerbook's HD, so I partitioned it into two volumes & use each set to alternate backup periods of Daily & Weekly. Archive files should be backed up on CDs, DVDs, or another HD.