Is it legal to burn an iTunes playlist to an audio CD and give it a friend as a gift?
In Canada this is not legal. Private copying is covered by a levy you pay on the blank CD-R media you are burning the tracks to but private copies are for your own use, they cannot be given away. There's some contrast here with CDs that's interesting. With physical media like tapes or CDs the "owner" is the person in possession of the original copy. This definition made it legit, at least in Canada, to borrow original materiel, copy it, and then return it. The levy on the CD-R covered the royalty payment for the copy (in theory) and you weren't obligated to destroy copies if the original left your possession. With downloaded content you can't give away the original in the same sense as physical media. Lending downloaded media and non-private copying of downloaded media are essentially indistinguishable actions.

Some legal alternatives in Canada:


Buy all the songs in physical format and make your mix tape from those
Buy her the tracks as gifts via iTunes
Buy you and her a month subscription to Rdio and make her a shared playlist there


Downloaded content has taken all the romance out of making mix tapes, that's for certain.